================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2001 Commission file number 0-9286 ----------------- Coca-Cola Bottling Co. Consolidated (Exact name of Registrant as specified in its charter) Delaware 56-0950585 (State or other ( I.R.S. jurisdiction Employer Identification of incorporation or No.) organization) 4100 Coca-Cola Plaza, 28211 Charlotte, North Carolina (Address of principal (Zip Code) executive offices) (704) 557-4400 (Registrant's telephone number, including area code) ----------------- Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $l.00 par value (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of voting stock held by non-affiliates of the Registrant. <TABLE> <CAPTION> Market Value as of March 8, 2002 -------------------------------- <S> <C> Common Stock, $l.00 par value $191,130,092 Class B Common Stock, $l.00 par value * </TABLE> - -------- * No market exists for the shares of Class B Common Stock, which is neither registered under Section 12 of the Act nor subject to Section 15(d) of the Act. The Class B Common Stock is convertible into Common Stock on a share-for-share basis at the option of the holder. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. <TABLE> <CAPTION> Class Outstanding as of March 8, 2002 ----- ------------------------------- <S> <C> Common Stock, $1.00 par value 6,392,477 Class B Common Stock, $1.00 par value 2,380,852 </TABLE> Documents Incorporated by Reference Portions of Proxy Statement to be filed pursuant to Section 14 of the Exchange Act with respect to the 2002 Annual Meeting of Stockholders..........................Part III, Items 10-13 ================================================================================
Part I Item 1. Business Introduction and Recent Developments Coca-Cola Bottling Co. Consolidated, a Delaware corporation (the "Company"), produces, markets and distributes carbonated and noncarbonated beverages, primarily products of The Coca-Cola Company, Atlanta, Georgia ("The Coca-Cola Company"). The Company was incorporated in 1980 and its predecessors have been in the soft drink manufacturing and distribution business since 1902. The Company has grown significantly since 1984. In 1984, net sales were approximately $130 million. In 2001, net sales were approximately $1.02 billion. The Company's bottling territory was concentrated in North Carolina prior to 1984. A series of acquisitions since 1984 has significantly expanded the Company's bottling territory. The more significant transactions since 1993 were as follows: . July 2, 1993--Formation of Piedmont Coca-Cola Bottling Partnership ("Piedmont"). Piedmont is a joint venture originally owned equally by the Company and The Coca-Cola Company through their respective subsidiaries. Piedmont distributes and markets soft drink products, primarily in parts of North Carolina and South Carolina. The Company sold and contributed certain territories to Piedmont upon formation. The Company currently provides part of the finished product requirements for Piedmont and receives a fee for managing the operations of Piedmont pursuant to a management agreement. . June 1, 1994--The Company executed a management agreement with South Atlantic Canners, Inc. ("SAC"), a manufacturing cooperative located in Bishopville, South Carolina. The Company is a member of the cooperative and receives a fee for managing the day-to-day operations of SAC pursuant to a ten-year management agreement. SAC significantly expanded its operations by adding two PET (plastic) bottling lines in 1994. These bottling lines supply a portion of the Company's and Piedmont's volume requirements for finished product in PET containers. . May 28, 1999--Acquisition of all the outstanding capital stock of Carolina Coca-Cola Bottling Company, Inc. which included bottling territory covering central South Carolina. . September 29, 2000--Sale of bottling territory in Kentucky and Ohio. The bottling territory sold represented approximately 3% of the Company's annual sales volume. . January 2, 2002--Purchase of an additional 4.651% interest in Piedmont from The Coca-Cola Company, increasing the Company's ownership in Piedmont to 54.651%. As a result of the increase in ownership, the results of operations, financial position and cash flows of Piedmont will be consolidated with those of the Company beginning in the first quarter of 2002. These transactions, along with several smaller acquisitions of additional bottling territories, have resulted in the Company becoming the second largest Coca-Cola bottler in the United States. The Company considers acquisition opportunities for additional territories on an ongoing basis. To achieve its goals, further purchases and sales of bottling rights and entities possessing such rights and other related transactions designed to facilitate such purchases and sales may occur. The Coca-Cola Company currently owns an economic interest of approximately 28.3% and a voting interest of approximately 22.1% in the Company. J. Frank Harrison, Jr., J. Frank Harrison, III and Reid M. Henson (as trustee of certain trusts), J. Frank Harrison Family LLC and the Harrison Family Limited Partnerships are parties to a Voting Agreement and Irrevocable Proxy with The Coca-Cola Company pursuant to which, among other things, Mr. Harrison, III has been granted an Irrevocable Proxy for life concerning the shares of Common Stock and Class B Common Stock owned by The Coca-Cola Company. 1
General In its soft drink operations, the Company holds Bottle Contracts and Allied Bottle Contracts under which it produces and markets, in certain regions, carbonated soft drink products of The Coca-Cola Company, including Coca-Cola classic, caffeine free Coca-Cola classic, diet Coke, diet Coke with lemon, caffeine free diet Coke, Cherry Coke, diet Cherry Coke, TAB, Sprite, diet Sprite, Surge, Citra, Mello Yello, diet Mello Yello, Mello Yello Cherry, Mello Yello Melon, Mr. PiBB, Fruitopia, Barq's Root Beer, diet Barq's Root Beer, Fresca, Minute Maid orange and diet Minute Maid orange sodas. The Company also distributes and markets under Marketing and Distribution Agreements POWERade, Dasani and Minute Maid Juices To Go in certain of its markets. The Company produces and markets Dr Pepper in most of its regions. The Company also distributes and markets various other products, including Seagrams' products and Sundrop, in one or more of the Company's regions under agreements with the companies that manufacture the concentrate for those beverages. In addition, the Company also produces soft drinks for other Coca-Cola bottlers. The Company's principal soft drink is Coca-Cola classic. During the last three fiscal years, sales of products under the Coca-Cola trademark have accounted for more than half of the Company's soft drink sales. In total, the products of The Coca-Cola Company accounted for approximately 90% of the Company's soft drink sales during 2001. Beverage Agreements The Company holds contracts with The Coca-Cola Company which entitle the Company to produce and market The Coca-Cola Company's soft drinks in bottles, cans and five gallon, pressurized, pre-mix containers. The Company is one of many companies holding such contracts. The Coca-Cola Company is the sole owner of the secret formulas pursuant to which the primary components (either concentrates or syrups) of Coca-Cola trademark beverages and other trademark beverages are manufactured. The concentrates, when mixed with water and sweetener, produce syrup which, when mixed with carbonated water, produces the soft drink known as "Coca-Cola classic" and other soft drinks of The Coca-Cola Company which are manufactured and marketed by the Company. The Company also purchases natural sweeteners from The Coca-Cola Company. No royalty or other compensation is paid under the contracts with The Coca-Cola Company for the Company's right to use in its territories the tradenames and trademarks, such as "Coca-Cola classic" and their associated patents, copyrights, designs and labels, all of which are owned by The Coca-Cola Company. The Company has similar arrangements with Dr Pepper Company and other beverage companies. Bottle Contracts. The Company is party to standard bottle contracts with The Coca-Cola Company for each of its bottling territories (the "Bottle Contracts") which provide that the Company will purchase its entire requirement of concentrates and syrups for Coca-Cola classic, caffeine free Coca-Cola classic, diet Coke, diet Coke with lemon, caffeine free diet Coke, Cherry Coke and diet Cherry Coke (together, the "Coca-Cola Trademark Beverages") from The Coca-Cola Company. The Company has the exclusive right to distribute Coca-Cola Trademark Beverages for sale in its territories in authorized containers of the nature currently used by the Company, which include cans and refillable and nonrefillable bottles. The Coca-Cola Company may determine from time to time what containers of this type to authorize for use by the Company. The price The Coca-Cola Company charges for syrup or concentrate under the Bottle Contracts is set by The Coca-Cola Company from time to time. Except as provided in the Supplementary Agreement described below, there are no limitations on prices for concentrate or syrup. Consequently, the prices at which the Company purchases concentrates and syrup under the Bottle Contracts may vary materially from the prices it has paid during the periods covered by the financial information included in this report. 2
Under the Bottle Contracts, the Company is obligated to maintain such plant, equipment, staff and distribution facilities as are required for the manufacture, packaging and distribution of the Coca-Cola Trademark Beverages in authorized containers, and in sufficient quantities to satisfy fully the demand for these beverages in its territories; to undertake adequate quality control measures and maintain sanitation standards prescribed by The Coca-Cola Company; to develop, stimulate and satisfy fully the demand for Coca-Cola Trademark Beverages and to use all approved means, and to spend such funds on advertising and other forms of marketing, as may be reasonably required to meet that objective; and to maintain such sound financial capacity as may be reasonably necessary to assure performance by the Company and its affiliates of their obligations to The Coca-Cola Company. The Bottle Contracts require the Company to submit to The Coca-Cola Company each year its plans for marketing, management and advertising with respect to the Coca-Cola Trademark Beverages for the ensuing year. Such plans must demonstrate that the Company has the financial capacity to perform its duties and obligations to The Coca-Cola Company under the Bottle Contracts. The Company must obtain The Coca-Cola Company's approval of those plans, which approval may not be unreasonably withheld, and if the Company carries out its plans in all material respects, it will have satisfied its contractual obligations. Failure to carry out such plans in all material respects would constitute an event of default that, if not cured within 120 days of notice of such failure, would give The Coca-Cola Company the right to terminate the Bottle Contracts. If the Company at any time fails to carry out a plan in all material respects with respect to any geographic segment (as defined by The Coca-Cola Company) of its territory, and if that failure is not cured within six months of notice of such failure, The Coca-Cola Company may reduce the territory covered by the applicable Bottle Contract by eliminating the portion of the territory with respect to which the failure has occurred. The Coca-Cola Company has no obligation under the Bottle Contracts to participate with the Company in expenditures for advertising and marketing. As it has in the past, The Coca-Cola Company may contribute to such expenditures and undertake independent advertising and marketing activities, as well as cooperative advertising and sales promotion programs which require mutual cooperation and financial support of the Company. The future levels of marketing support and promotional funds provided by The Coca-Cola Company may vary materially from the levels provided during the periods covered by the financial information included in this report. The Coca-Cola Company has the right to reformulate any of the Coca-Cola Trademark Beverages and to discontinue any of the Coca-Cola Trademark Beverages, subject to certain limitations, so long as all Coca-Cola Trademark Beverages are not discontinued. The Coca-Cola Company may also introduce new beverages under the trademarks "Coca-Cola" or "Coke" or any modification thereof, and in that event the Company would be obligated to manufacture, package, distribute and sell the new beverages with the same duties as exist under the Bottle Contracts with respect to Coca-Cola Trademark Beverages. If the Company acquires the right to manufacture and sell Coca-Cola Trademark Beverages in any additional territory, the Company has agreed that such new territory will be covered by a standard contract in the same form as the Bottle Contracts and that any existing agreement with respect to the acquired territory automatically shall be amended to conform to the terms of the Bottle Contracts. In addition, if the Company acquires control, directly or indirectly, of any bottler of Coca-Cola Trademark Beverages, or any party controlling a bottler of Coca-Cola Trademark Beverages, the Company must cause the acquired bottler to amend its franchises for the Coca-Cola Trademark Beverages to conform to the terms of the Bottle Contracts. The Bottle Contracts are perpetual, subject to termination by The Coca-Cola Company in the event of default by the Company. Events of default by the Company include (1) the Company's insolvency, bankruptcy, dissolution, receivership or similar conditions; (2) the Company's disposition of any interest in the securities of any bottling subsidiary without the consent of The Coca-Cola Company; (3) termination of any agreement regarding the manufacture, packaging, distribution or sale of Coca-Cola Trademark Beverages between The Coca-Cola Company and any person that controls the Company; (4) any material breach of any obligation 3
occurring under the Bottle Contracts (including, without limitation, failure to make timely payment for any syrup or concentrate or of any other debt owing to The Coca-Cola Company, failure to meet sanitary or quality control standards, failure to comply strictly with manufacturing standards and instructions, failure to carry out an approved plan as described above, and failure to cure a violation of the terms regarding imitation products), that remains uncured for 120 days after notice by The Coca-Cola Company; (5) producing, manufacturing, selling or dealing in any "Cola Product," as defined, or any concentrate or syrup which might be confused with those of The Coca-Cola Company; (6) selling any product under any trade dress, trademark or tradename or in any container that is an imitation of a trade dress or container in which The Coca-Cola Company claims a proprietary interest; or (7) owning any equity interest in or controlling any entity which performs any of the activities described in (5) or (6) above. In addition, upon termination of the Bottle Contracts for any reason, The Coca-Cola Company, at its discretion, may also terminate any other agreements with the Company regarding the manufacture, packaging, distribution, sale or promotion of soft drinks, including the Allied Bottle Contracts described elsewhere herein. The Company is prohibited from assigning, transferring or pledging its Bottle Contracts, or any interest therein, whether voluntarily or by operation of law, without the prior consent of The Coca-Cola Company. Moreover, the Company may not enter into any contract or other arrangement to manage or participate in the management of any other Coca-Cola bottler without the prior consent of The Coca-Cola Company. The Coca-Cola Company may automatically amend the Bottle Contracts if 80% of the domestic bottlers who are parties to agreements with The Coca-Cola Company containing substantially the same terms as the Bottle Contracts, which bottlers purchased for their own account 80% of the syrup and equivalent gallons of concentrate for Coca-Cola Trademark Beverages purchased for the account of all such bottlers, agree that their bottle contracts shall be likewise amended. Supplementary Agreement. The Company and The Coca-Cola Company are also parties to a Supplementary Agreement (the "Supplementary Agreement") that modifies some of the provisions of the Bottle Contracts. The Supplementary Agreement provides that The Coca-Cola Company will exercise good faith and fair dealing in its relationship with the Company under the Bottle Contracts; offer marketing support and exercise its rights under the Bottle Contracts in a manner consistent with its dealings with comparable bottlers; offer to the Company any written amendment to the Bottle Contracts (except amendments dealing with transfer of ownership) which it offers to any other bottler in the United States; and, subject to certain limited exceptions, sell syrups and concentrates to the Company at prices no greater than those charged to other bottlers which are parties to contracts substantially similar to the Bottle Contracts. The Supplementary Agreement permits transfers of the Company's capital stock that would otherwise be limited by the Bottle Contracts. Allied Bottle Contracts. Other contracts with The Coca-Cola Company (the "Allied Bottle Contracts") grant similar exclusive rights to the Company with respect to the distribution of Sprite, Mr. PiBB, Citra, Mello Yello, diet Mello Yello, Mello Yello Cherry, Mello Yello Melon, Fanta, TAB, diet Sprite, sugar free Mr. PiBB, Fresca, Fruitopia, Minute Maid orange and diet Minute Maid orange sodas (the "Allied Beverages") for sale in authorized containers in its territories. These contracts contain provisions that are similar to those of the Bottle Contracts with respect to pricing, authorized containers, planning, quality control, trademark and transfer restrictions and related matters. Each Allied Bottle Contract has a term of ten years and is renewable by the Company for an additional ten years at the end of each ten-year period, but is subject to termination in the event of (1) the Company's insolvency, bankruptcy, dissolution, receivership or similar condition; (2) termination of the Company's Bottle Contract covering the same territory by either party for any reason; and (3) any material breach of any obligation of the Company under the Allied Bottle Contract that remains uncured for 120 days after notice by The Coca-Cola Company. The Coca-Cola Company purchased all rights of Barq's, Inc. under its Bottler's Agreements with the Company. These contracts cover both Barq's Root Beer and diet Barq's Root Beer and remain in effect unless terminated by The Coca-Cola Company for breach by the Company of their terms, insolvency of the Company or 4
the failure of the Company to manufacture, bottle and sell the products for 15 consecutive days or to purchase extract for a period of 120 consecutive days. Post-mix Rights. The Company also has the non-exclusive right to sell Coca-Cola classic and other fountain syrups ("post-mix syrup") of The Coca-Cola Company. In 2001, post-mix net sales were $42.5 million. Other Bottling Agreements. The bottling agreements from most other soft drink franchisers are similar to those described above in that they are renewable at the option of the Company and the franchisers. The price the franchisers may charge for syrup or concentrate is set by the franchisers from time to time. They also contain similar restrictions on the use of trademarks, approved bottles, cans and labels and sale of imitations or substitutes as well as termination for cause provisions. Sales of beverages by the Company under these agreements represented approximately 10% of the Company's sales for fiscal year 2001. The territories covered by the Allied Bottle Contracts and by bottling agreements for products of franchisers other than The Coca-Cola Company in most cases correspond with the territories covered by the Bottle Contracts. The variations do not have a material effect on the Company's business. Markets and Production and Distribution Facilities As of March 1, 2002, the Company held bottling rights from The Coca-Cola Company covering the majority of central, northern and western North Carolina, and portions of Alabama, Mississippi, Tennessee, Kentucky, Virginia, West Virginia, Pennsylvania, South Carolina, Georgia and Florida. The total population within the Company's bottling territory is approximately 13.6 million. As of March 1, 2002, the Company operated in six principal geographical regions. Certain information regarding each of these markets follows: 1. North Carolina/South Carolina. This region includes the majority of central and western North Carolina, including Raleigh, Greensboro, Winston-Salem, High Point, Hickory, Asheville, Fayetteville and Charlotte and the surrounding areas and a portion of central South Carolina, including Sumter. The region has an estimated population of 6.4 million. A production/distribution facility is located in Charlotte and 13 other distribution facilities are located in the region. 2. South Alabama. This region includes a portion of southwestern Alabama, including Mobile and surrounding areas, and a portion of southeastern Mississippi. The region has an estimated population of 1.1 million. A production/distribution facility is located in Mobile and four other distribution facilities are located in the region. 3. South Georgia. This region includes a small portion of eastern Alabama, a portion of southwestern Georgia including Columbus, Georgia and surrounding areas, and a portion of the Florida Panhandle. This region has an estimated population of 1.0 million. A distribution facility is located in Columbus, Georgia and four other distribution facilities are located in the region. 4. Middle Tennessee. This region includes a portion of central Tennessee, including Nashville and surrounding areas, a small portion of southern Kentucky and a small portion of northwest Alabama. The region has an estimated population of 2.0 million. A production/distribution facility is located in Nashville and seven other distribution facilities are located in the region. 5. Western Virginia. This region includes most of southwestern Virginia, including Roanoke and surrounding areas, a portion of the southern piedmont of Virginia, a portion of northeastern Tennessee and a portion of southeastern West Virginia. The region has an estimated population of 1.7 million. A production/distribution facility is located in Roanoke and seven other distribution facilities are located in the region. 5
6. West Virginia. This region includes most of the state of West Virginia and a portion of southwestern Pennsylvania. The region has an estimated population of 1.4 million. There are eight distribution facilities located in the region. The Company owns 100% of the operations in each of the regions previously listed. In July 1993, the Company sold the majority of the South Carolina bottling territory that it then owned to Piedmont. Pursuant to a management agreement, the Company produces a portion of the soft drink products for Piedmont. The Company initially owned a 50% interest in Piedmont. On January 2, 2002, the Company purchased an additional 4.651% interest in Piedmont from The Coca-Cola Company, increasing the Company's interest in Piedmont to 54.651%. Piedmont's bottling territory covers parts of eastern North Carolina and most of South Carolina (other than portions of central South Carolina). This region has an estimated population of 4.5 million. On June 1, 1994, the Company executed a management agreement with SAC, a manufacturing cooperative located in Bishopville, South Carolina. The Company is a member of the cooperative and receives a fee for managing the day-to-day operations of SAC pursuant to a ten-year management agreement. Management fees from SAC were $1.2 million, $1.0 million and $1.3 million in 2001, 2000 and 1999, respectively. SAC significantly expanded its operations by adding two PET bottling lines in 1994. The bottling lines supply a portion of the Company's and Piedmont's volume requirements for finished products in PET containers. In 1994, the Company executed member purchase agreements with SAC that require minimum annual purchases of canned product, 20 ounce PET product, 2 liter PET product and 3 liter PET product by the Company of approximately $40 million. Purchases from SAC by the Company and Piedmont for finished products were $110 million, $110 million and $109 million in 2001, 2000 and 1999, respectively. In addition to producing bottled and canned soft drinks for the Company's bottling territories, each production facility also produces some products for sale by other Coca-Cola bottlers. With the exception of the Company's production of soft drink products for Piedmont, this contract production is currently not a material portion of the Company's total production volume. Raw Materials In addition to concentrates obtained by the Company from The Coca-Cola Company and other concentrate companies for use in its soft drink manufacturing, the Company also purchases sweeteners, carbon dioxide, plastic bottles, cans, closures, pre-mix containers and other packaging materials as well as equipment for the production, distribution and marketing of soft drinks. Except for sweetener, cans, carbon dioxide and plastic bottles, the Company purchases its raw materials from multiple suppliers. The Company has a supply agreement with its aluminum can supplier which requires the Company to purchase substantially all of its aluminum can requirements. This agreement, which extends through the end of 2003, also reduces the variability of the cost of cans. The Company purchases substantially all of its plastic bottles (20 ounce, half liter, 1 liter, 2 liter and 3 liter sizes) from manufacturing plants which are owned and operated by two cooperatives of Coca-Cola bottlers, including the Company. None of the materials or supplies used by the Company is in short supply, although the supply of specific materials could be adversely affected by strikes, weather conditions, governmental controls or national emergency conditions. 6
Marketing The Company's soft drink products are sold and distributed directly by its employees to retail stores and other outlets, including food markets, institutional accounts and vending machine outlets. During 2001, approximately 78% of the Company's physical case volume was in the take-home channel through supermarkets, convenience stores, drug stores and other retail outlets. The remaining volume was in the cold drink channel, primarily through dispensing machines, owned either by the Company, retail outlets or third party vending companies. No individual customer accounted for as much as 10% of the Company's total sales volume. All of the Company's sales are to customers in the United States. New product introductions, packaging changes and sales promotions have been the major competitive techniques in the soft drink industry in recent years and have required and are expected to continue to require substantial expenditures. Product introductions in the last three years include Dasani, Mello Yello Cherry, Mello Yello Melon and diet Coke with lemon. New product introductions have resulted in increased operating costs for the Company due to special marketing efforts, obsolescence of replaced items and, in some cases, higher raw materials costs. After new package introductions in recent years, the Company sells its soft drink products primarily in nonrefillable bottles and cans, in varying proportions from market to market. There may be as many as thirteen different packages for Coca-Cola classic within a single geographical area. Physical unit sales of soft drinks during fiscal year 2001 were approximately 54% cans, 45% nonrefillable bottles and 1% pre-mix. Advertising in various media, primarily television and radio, is relied upon extensively in the marketing of the Company's soft drinks. The Coca-Cola Company and Dr Pepper Company ("Beverage Companies") each have joined the Company in making substantial expenditures in cooperative advertising in the Company's marketing areas. The Company has benefited from national advertising programs conducted by The Coca-Cola Company and Dr Pepper Company, respectively. In addition, the Company expends substantial funds on its own behalf for extensive local sales promotions of the Company's soft drink products. Historically, these expenses have been partially offset by marketing funds which the Beverage Companies provide to the Company in support of a variety of marketing programs, such as point-of-sale displays and merchandising programs. However, the Beverage Companies are under no obligation to provide the Company with marketing funding in the future. The substantial outlays which the Company makes for advertising are generally regarded as necessary to maintain or increase sales volume, and any significant curtailment of the marketing funding provided by The Coca-Cola Company for advertising or marketing programs which benefit the Company could have a material effect on the business and financial results of the Company. Seasonality Sales are somewhat seasonal, with the highest sales volume occurring in May, June, July and August. The Company has adequate production capacity to meet sales demands during these peak periods. Competition The soft drink industry is highly competitive. The Company's competitors include several large soft drink manufacturers engaged in the distribution of nationally advertised products, as well as similar companies which market lesser-known soft drinks in limited geographical areas and manufacturers of private brand soft drinks. In each region in which the Company operates, between 75% and 90% of carbonated soft drink sales in bottles, cans and pre-mix containers are accounted for by the Company and its principal competition, which in each region includes the local bottler of Pepsi-Cola and, in some regions, also includes the local bottler of Royal Crown products. The Company's products also compete with, among others, noncarbonated beverages and citrus and noncitrus fruit drinks. 7
The principal methods of competition in the soft drink industry are point-of-sale merchandising, new product introductions, packaging changes, price promotions, product quality, frequency of distribution and advertising. Government Regulation The production and marketing of beverages are subject to the rules and regulations of the United States Food and Drug Administration ("FDA") and other federal, state and local health agencies. The FDA also regulates the labeling of containers. As a manufacturer, seller and distributor of beverage products of The Coca-Cola Company and other soft drink manufacturers in exclusive territories, the Company is subject to antitrust laws of general applicability. However, pursuant to the United States Soft Drink Interbrand Competition Act, soft drink bottlers such as the Company may have an exclusive right to manufacture, distribute and sell a soft drink product in a defined geographic territory if that soft drink product is in substantial and effective competition with other products of the same general class in the market. The Company believes that there is such substantial and effective competition in each of the exclusive geographic territories in the United States in which the Company operates. From time to time, legislation has been proposed in Congress and by certain state and local governments which would prohibit the sale of soft drink products in nonrefillable bottles and cans or require a mandatory deposit as a means of encouraging the return of such containers in an attempt to reduce solid waste and litter. The Company is currently not impacted by this type of proposed legislation. Soft drink and similar-type taxes have been in place in West Virginia and Tennessee for several years. Environmental Remediation The Company does not currently have any material capital expenditure commitments for environmental compliance or environmental remediation for any of its properties. Employees As of March 1, 2002, the Company had approximately 5,500 full-time employees, of whom approximately 400 were union members. The total number of employees, including part-time employees, is approximately 6,050. Less than 10% of the Company's labor force is currently covered by collective bargaining agreements. Two collective bargaining contracts covering approximately 6% of the Company's employees expire during 2002. In March 2000, at the end of a collective bargaining agreement in Huntington, West Virginia, the Company and Teamsters Local Union 505 were unable to reach an agreement on wages and benefits. The union elected to strike and other Teamster-represented sales centers in West Virginia joined in a sympathy strike. In August 2000, the Company and the respective local unions settled all outstanding issues. 8
Item 2. Properties The principal properties of the Company include its corporate headquarters, its four production/distribution facilities and its 44 distribution centers. The Company owns two production/distribution facilities and 39 distribution centers, and leases its corporate headquarters, two other production/distribution facilities and five distribution centers. The Company leases its 110,000 square foot corporate headquarters and a 65,000 square foot adjacent office building from an affiliate for a ten-year term expiring January 2009. Total rent expense for these facilities was $3.3 million in 2001. The Company leases its 542,000 square foot Snyder Production Center and an adjacent 105,000 square foot distribution center in Charlotte, North Carolina from an affiliate for a ten-year term expiring in December 2010. Rent expense under this lease totaled $3.3 million in 2001. The Company also leases its 297,500 square foot production/distribution facility in Nashville, Tennessee. The lease requires monthly payments through 2009. Rent expense under this lease totaled $.4 million in 2001. The Company's other real estate leases are not material. The Company owns and operates a 316,000 square foot production/distribution facility in Roanoke, Virginia and a 271,000 square foot production/distribution facility in Mobile, Alabama. The current percentage utilization of the Company's production centers as of March 1, 2002 is approximately as indicated below: <TABLE> <CAPTION> Production Facilities Location Percentage Utilization * -------- ------------------------ <S> <C> Charlotte, North Carolina 79% Mobile, Alabama 53% Nashville, Tennessee 62% Roanoke, Virginia 75% </TABLE> -------- * Estimated 2002 production divided by capacity (based on operations of 6 days per week and 16 hours per day). The Company currently has sufficient production capacity to meet its operational requirements. In addition to the production facilities noted above, the Company also has access to production capacity from SAC, a 113,000 square foot manufacturing cooperative located in Bishopville, South Carolina. The Company's products are transported to distribution centers for storage pending sale. The number of distribution facilities by market area as of March 1, 2002 is as follows: <TABLE> <CAPTION> Distribution Facilities Region Number of Facilities ------ -------------------- <S> <C> North Carolina/South Carolina 14 South Alabama 5 South Georgia 5 Middle Tennessee 8 Western Virginia 8 West Virginia 8 </TABLE> 9
The Company's distribution facilities are all in good condition and are adequate for the Company's operations as presently conducted. The Company also operates approximately 2,900 vehicles in the sale and distribution of its soft drink products, of which approximately 1,300 are route delivery trucks. In addition, the Company owns approximately 171,000 soft drink dispensing and vending machines for the sale of its products in its bottling territories. Item 3. Legal Proceedings On August 3, 1999, North American Container, Inc. filed a complaint in the United States District Court for the Northern District of Texas against the Company and 44 other defendants. By its First Amended Complaint filed in April 2000, the plaintiff seeks to enforce United States Reissue Patent No. RIE 36,639 and alleges that the plastic containers used by the Company in connection with the distribution of soft drinks and other products infringe the patent. The Company has notified its suppliers of the lawsuit and has asserted indemnification claims against them. The Company's suppliers have assumed the defense of the claim pursuant to a written agreement providing for indemnification. The Company's suppliers are vigorously defending the claim and the Company believes it has meritorious defenses against the imposition of any liability in this action. There are various other lawsuits and claims pending against the Company arising in the ordinary course of its business. The Company believes that any losses that may arise from these lawsuits or claims will not have a materially adverse result on the financial condition or results of operation of the Company. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 30, 2001. 10
Executive Officers Of The Registrant Pursuant to General Instruction G(3) of Form 10-K, the following list is included as a separate item in Part I of this Report. The following is a list of names and ages of all the executive officers of the Registrant as of March 1, 2002, indicating all positions and offices with the Registrant held by each such person. All officers have served in their present capacities for the past five years except as otherwise stated. J. FRANK HARRISON, III, age 47, is Chairman of the Board of Directors and Chief Executive Officer of the Company. Mr. Harrison, III was appointed Chairman of the Board of Directors in December 1996. Mr. Harrison, III served as Vice Chairman from November 1987 through December 1996 and was appointed as the Company's Chief Executive Officer in May 1994. He was first employed by the Company in 1977, and has served as a Division Sales Manager and as a Vice President of the Company. Mr. Harrison, III is a Director of Wachovia Bank & Trust Co., N.A., Southern Region Board. He is Chairman of the Finance Committee and Vice Chairman of the Executive Committee. JAMES L. MOORE, JR., age 59, is Vice Chairman of the Board of Directors of the Company, a position he was appointed to in January 2001. Prior to that time, Mr. Moore had served as President of the Company since 1987. Mr. Moore is a Director of Park Meridian Financial Corp. He has served as a Director of the Company since March 1987. Mr. Moore is Chairman of the Retirement Benefits Committee and a member of the Executive Committee. WILLIAM B. ELMORE, age 46, is President and Chief Operating Officer and a Director of the Company, positions he has held since January 2001. Previously, he was Vice President, Value Chain since July 1999 and Vice President, Business Systems from August 1998 to June 1999. He was Vice President, Treasurer from June 1996 to July 1998. He was Vice President, Regional Manager for the Virginia Division, West Virginia Division and Tennessee Division from August 1991 to May 1996. Mr. Elmore is a member of the Executive Committee and the Retirement Benefits Committee. ROBERT D. PETTUS, JR., age 57, is Executive Vice President and Assistant to the Chairman, a position to which he was appointed in January 1997. Mr. Pettus was previously Vice President, Human Resources, a position he held since September 1984. DAVID V. SINGER, age 46, is Executive Vice President and Chief Financial Officer, a position to which he was appointed in January 2001. He was previously Vice President and Chief Financial Officer, a position he had held since October 1987. CLIFFORD M. DEAL, III, age 40, is Vice President and Treasurer, a position he has held since June 1999. Previously, he was Director of Compensation and Benefits from October 1997 to May 1999. He was Corporate Benefits Manager from December 1995 to September 1997. From November 1993 to November 1995 he was Manager of Tax Accounting. NORMAN C. GEORGE, age 46, is Senior Vice President, Chief Marketing and Customer Officer, a position he was appointed to in September 2001. Prior to that he was Vice President, Marketing and National Sales, a position he was appointed to in December 1999. Prior to that he was Vice President, Corporate Sales, a position he had held since August 1998. Previously, he was Vice President, Sales for the Carolinas South Region, a position he held beginning in November 1991. RONALD J. HAMMOND, age 46, is Vice President, Value Chain, a position he was appointed to in January 2001. Prior to that he was Vice President, Manufacturing, a position he had held since September 1999. Before joining 11
the Company, he was Vice President, Operations, Asia Pacific at Pepsi-Cola International, where he was an employee since 1981. KEVIN A. HENRY, age 34, is Vice President, Human Resources, a position he has held since February 2001. Prior to joining the Company he was Senior Vice President, Human Resources at Nationwide Credit Inc., where he was an employee since January 1997. Prior to that he was Director, Human Resources, at Office Depot Inc. since December 1994. UMESH M. KASBEKAR, age 44, is Vice President, Planning and Administration, a position he has held since January 1995. C. RAY MAYHALL, JR., age 54, is Senior Vice President, Sales, a position he was appointed to in September 2001. Prior to that he was Vice President, Distribution and Technical Services, a position he was appointed to in December 1999. Prior to that he was Regional Vice President, Sales, a position he had held since November 1992. LAUREN C. STEELE, age 47, is Vice President, Corporate Affairs, a position he has held since May 1989. He is responsible for governmental, media and community relations for the Company. STEVEN D. WESTPHAL, age 47, is Vice President and Controller of the Company, a position he has held since November 1987. JOLANTA T. ZWIREK, age 46, is Vice President and Chief Information Officer, a position she has held since June 1999. Prior to joining the Company, she was Vice President and Chief Technology Officer for Bank One during a portion of 1999. Prior to that, she was a Senior Director in the Information Services organization at McDonald's Corporation, where she was an employee since 1984. 12
Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company has two classes of common stock outstanding, Common Stock and Class B Common Stock. The Common Stock is traded on the Nasdaq National Market tier of the Nasdaq Stock Market(R) under the symbol COKE. The table below sets forth for the periods indicated the high and low reported sales prices per share of Common Stock. There is no established public trading market for the Class B Common Stock. Shares of Class B Common Stock are convertible on a share-for-share basis into shares of Common Stock. <TABLE> <CAPTION> Fiscal Year --------------------------- 2001 2000 ------------- ------------- High Low High Low ------ ------ ------ ------ <S> <C> <C> <C> <C> First quarter........... $45.13 $36.50 $53.00 $46.50 Second quarter.......... 41.00 38.06 52.75 41.38 Third quarter........... 42.24 36.17 47.75 36.50 Fourth quarter.......... 40.95 36.09 45.00 32.05 </TABLE> The quarterly dividend rate of $.25 per share on both Common Stock and Class B Common Stock shares was maintained throughout 2000 and 2001. Pursuant to the Company's Certificate of Incorporation, no cash dividend or dividend of property or stock other than stock of the Company may be declared and paid, per share, on the Class B Common Stock unless a dividend of an amount greater than or equal to such cash or property or stock has been declared and paid on the Common Stock. The amount and frequency of future dividends will be determined by the Company's Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared in the future. The number of stockholders of record of the Common Stock and Class B Common Stock, as of March 8, 2002, was 3,311 and 13, respectively. On March 6, 2002, the Compensation Committee determined that 20,000 shares of restricted Class B Common Stock, $1.00 par value, vested and should be issued pursuant to a performance-based award to J. Frank Harrison, III, in connection with his services as Chairman of the Board of Directors and Chief Executive Officer of the Company. This award was approved by the Company's stockholders in 1999. The shares were issued without registration under the Securities Act of 1933 in reliance on Section 4(2) thereof. 13
Item 6. Selected Financial Data The following table sets forth certain selected financial data concerning the Company for the five years ended December 30, 2001. The data for the five years ended December 30, 2001 is derived from audited financial statements of the Company. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in Item 7 hereof and is qualified in its entirety by reference to the more detailed financial statements and notes contained in Item 8 hereof. This information should also be read in conjunction with the "Introduction and Recent Developments" section in Item 1 hereof. Selected Financial Data * <TABLE> <CAPTION> Fiscal Year ** ----------------------------------------------------- 2001 2000*** 1999 1998 1997 ---------- ---------- ---------- -------- -------- In Thousands (Except Per Share Data) <S> <C> <C> <C> <C> <C> Summary of Operations Net sales.......................................... $1,022,686 $ 995,134 $ 972,551 $928,502 $802,141 ---------- ---------- ---------- -------- -------- Cost of sales...................................... 555,570 530,241 543,113 534,919 452,893 Selling, general and administrative expenses....... 323,668 323,223 291,907 276,245 239,901 Depreciation expense............................... 66,134 64,751 60,567 37,076 33,783 Amortization of goodwill and intangibles........... 15,296 14,712 13,734 12,972 12,221 Restructuring expense.............................. 2,232 ---------- ---------- ---------- -------- -------- Total costs and expenses........................... 960,668 932,927 911,553 861,212 738,798 ---------- ---------- ---------- -------- -------- Income from operations............................. 62,018 62,207 60,998 67,290 63,343 Interest expense................................... 44,322 53,346 50,581 39,947 37,479 Other income (expense), net........................ (6,000) 974 (5,431) (4,098) (1,594) ---------- ---------- ---------- -------- -------- Income before income taxes......................... 11,696 9,835 4,986 23,245 24,270 Income taxes....................................... 2,226 3,541 1,745 8,367 9,004 ---------- ---------- ---------- -------- -------- Net income......................................... $ 9,470 $ 6,294 $ 3,241 $ 14,878 $ 15,266 ---------- ---------- ---------- -------- -------- Basic net income per share......................... $ 1.08 $ .72 $ .38 $ 1.78 $ 1.82 ---------- ---------- ---------- -------- -------- Diluted net income per share....................... $ 1.07 $ .71 $ .37 $ 1.75 $ 1.79 ---------- ---------- ---------- -------- -------- Cash dividends per share: Common........................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Class B Common................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Other Information Weighted average number of common shares outstanding................................ 8,753 8,733 8,588 8,365 8,407 Weighted average number of common shares outstanding--assuming dilution............. 8,821 8,822 8,708 8,495 8,509 Year-End Financial Position Total assets....................................... $1,064,459 $1,062,097 $1,108,392 $822,702 $775,507 ---------- ---------- ---------- -------- -------- Portion of long-term debt payable within one year.. 56,708 9,904 28,635 30,115 12,000 ---------- ---------- ---------- -------- -------- Current portion of obligations under capital leases 1,489 3,325 4,483 ---------- ---------- ---------- -------- -------- Long-term debt..................................... 620,156 682,246 723,964 491,234 493,789 ---------- ---------- ---------- -------- -------- Obligations under capital leases................... 935 1,774 4,468 ---------- ---------- ---------- -------- -------- Stockholders' equity............................... 17,081 28,412 30,851 14,198 7,685 ---------- ---------- ---------- -------- -------- </TABLE> - -------- * See Management's Discussion and Analysis for additional information. ** All years presented are 52-week years except 1998 which is a 53-week year. See Note 3 and Note 15 to the consolidated financial statements for additional information about Piedmont Coca-Cola Bottling Partnership. *** In September 2000, the Company sold bottling territory which represented approximately 3% of the Company's annual sales volume. 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction The Company Coca-Cola Bottling Co. Consolidated (the "Company") produces, markets and distributes carbonated and noncarbonated beverages, primarily products of The Coca-Cola Company, which include some of the most recognized and popular beverage brands in the world. The Company is currently the second largest bottler of products of The Coca-Cola Company in the United States. The Company also distributes several other beverage brands. The Company's product offerings include carbonated soft drinks, teas, juices, isotonics and bottled water. Over the past several years, the Company has expanded its bottling territory primarily throughout the southeast via acquisitions and, combined with internally generated growth, had net sales of over $1 billion in 2001. The Company is also a partner with The Coca-Cola Company in Piedmont Coca-Cola Bottling Partnership ("Piedmont"), a partnership that operates additional bottling territory with net sales of $297 million in 2001. Acquisitions and Divestitures On January 2, 2002, the Company purchased an additional 4.651% interest in Piedmont for $10.0 million from The Coca-Cola Company, increasing the Company's ownership in Piedmont to 54.651%. As a result of the increase in ownership, the results of operations, financial position and cash flows of Piedmont will be consolidated with those of the Company beginning in the first quarter of 2002. The Company's investment in Piedmont has been accounted for using the equity method for 2001 and prior years. Summarized financial information for Piedmont is included in the notes to the Company's financial statements. During 2000, the Company sold most of its bottling territory in Kentucky and Ohio to another Coca-Cola bottler. The territory sold represented approximately 3% of the Company's annual sales volume. During 1999, the Company expanded its bottling territory by acquiring three Coca-Cola bottlers as follows: . Carolina Coca-Cola Bottling Company, Inc., a Coca-Cola bottler with operations in central South Carolina in May 1999; . The bottling rights and operating assets of a small Coca-Cola bottler in north central North Carolina in May 1999; and . Lynchburg Coca-Cola Bottling Co., Inc., a Coca-Cola bottler with operations in central Virginia in October 1999. New Accounting Pronouncements On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS No. 133"), which requires that all derivative instruments be recognized in the financial statements at fair value. The adoption of SFAS No. 133 did not have a significant impact on the results of operations, financial position or cash flows during 2001. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations," ("SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," ("SFAS No. 142"). These standards require that all business combinations be accounted for using the purchase method and that goodwill and intangible assets with indefinite useful lives not be amortized but instead be tested for impairment at least annually. These standards provide guidelines for new disclosure requirements and outline the criteria for initial recognition and measurement of intangibles, assignment of assets and liabilities including goodwill to reporting units and goodwill impairment testing. The provisions of SFAS Nos. 141 and 142 apply to all business combinations consummated after June 30, 2001. The provisions of SFAS No. 142 for existing goodwill and other intangible assets are required to be implemented effective the first day of fiscal year 2002. The Company 15
anticipates the adoption of SFAS No. 142 will reduce amortization expense in 2002 by approximately $12.6 million for the Company and by approximately $8.4 million for Piedmont. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," but it retains many of the fundamental provisions of that Statement. SFAS No. 144 also extends the reporting requirements to report separately as discontinued operations, components of an entity that have either been disposed of or classified as held for sale. The provisions of SFAS No. 144 are required to be adopted at the beginning of fiscal year 2002. The Company believes that such adoption will not have a material effect on its financial statements. The Year in Review The year was highlighted by an increase in constant territory physical case volume of slightly over 4%, a significant increase in net income and strong free cash flow. Total debt and capital lease obligations decreased from $697.2 million at December 31, 2000 to $679.3 million at December 30, 2001. Strong cash flow from operations enabled the Company to repay approximately $18 million in debt and purchase approximately $49 million of equipment previously leased. New products, new packaging, growth in noncarbonated beverages and an emphasis on our core carbonated brands helped the Company increase volume by 4% in 2001. This increase in volume for 2001 comes after a volume decline of 5% in 2000. Net selling price per case was relatively unchanged for the year. The Company increased its net selling price per case by approximately 6.5% in 2000. The Company reported net income of $9.5 million or $1.08 per share for 2001 compared with net income of $6.3 million or $.72 per share for 2000. Net income for 2001 was favorably impacted by an income tax benefit of approximately $2.9 million, which resulted from the settlement of certain income tax matters with the Internal Revenue Service during the year. Operating results for 2000 included nonrecurring items that increased net income for the year by approximately $3.6 million. The nonrecurring income items in 2000 included a $5.6 million gain, net of tax, on the sale of bottling territory in Kentucky and Ohio offset partially by a provision for impairment of certain fixed assets of $2.0 million, net of tax. The Company benefited from declining interest rates over the course of the year. The combination of lower interest rates and reduced long-term debt balances contributed to a decline in interest expense of approximately $9 million from 2000. The Company's operations produced record free cash flow during 2001. Total debt and capital lease obligations decreased from $697.2 million at December 31, 2000 to $679.3 million at December 30, 2001. Strong cash flow from operations enabled the Company to repay approximately $18 million in debt and purchase approximately $49 million of equipment previously leased. The Company reduced its long-term debt and lease liabilities by approximately $64 million in 2000. The Company continues to focus on its key long-term objectives, including increasing per capita consumption, operating cash flow, free cash flow and stockholder value. Significant Events of Prior Years On June 1, 1994, the Company executed a management agreement with South Atlantic Canners, Inc. ("SAC"), a manufacturing cooperative located in Bishopville, South Carolina. SAC produces bottle and can product for its members. The Company is a member of the cooperative and receives a fee for managing the day-to-day operations of SAC pursuant to this ten-year management agreement. On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont to distribute and market soft drink products of The Coca-Cola Company and other third party licensors, primarily in certain portions of North Carolina and South Carolina. The Company provides a portion of the soft drink products to Piedmont and 16
receives a fee for managing the business of Piedmont pursuant to a management agreement. The Company and The Coca-Cola Company, through their respective subsidiaries, each beneficially owned a 50% interest in Piedmont at December 30, 2001. The Company has historically accounted for its investment in Piedmont using the equity method of accounting. As noted above, on January 2, 2002, the Company increased its ownership interest in Piedmont to 54.651% and The Coca-Cola Company's ownership in Piedmont was reduced to 45.349%. The results of operations, financial position and cash flows of Piedmont will be consolidated with those of the Company beginning in the first quarter of 2002. Discussion of Critical Accounting Policies In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results of operations and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Allowance for Doubtful Accounts The Company evaluates the collectibility of its trade accounts receivable based on a number of factors. In circumstances where we are aware of a specific customer's inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company's recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding. Property, Plant and Equipment Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets. Changes in circumstances such as technological advances, changes to the Company's business model or changes in the Company's capital strategy could result in the actual useful lives differing from the Company's estimates. In those cases where the Company determines that the useful life of property, plant and equipment should be shortened, the Company would depreciate the net book value in excess of the estimated salvage value over its revised remaining useful life. Factors such as changes in the planned use of manufacturing equipment, vending equipment, transportation equipment or software could result in shortened useful lives. Long-lived assets are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The estimate of future cash flow is based upon, among other things, certain assumptions about expected future operating performance. The Company's estimates of undiscounted cash flow may differ from actual cash flow due to, among other things, technological changes, economic conditions, changes to its business model or changes in its operating performance. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the asset, the asset will be written down to its estimated fair value. Goodwill and Other Intangible Assets In the first quarter of 2002, the Company will adopt the provisions of SFAS No. 142. The Company anticipates the adoption of SFAS No. 142 will reduce amortization expense in 2002 by approximately $12.6 million for the Company and by approximately $8.4 million for Piedmont. During 2002, the Company will perform the first of the annual impairment tests of its goodwill and intangible assets with indefinite useful lives. The Company has performed a preliminary impairment test of its goodwill and intangible assets with indefinite 17
useful lives and anticipates that this test will have no significant impact on the results of operations and financial condition of the Company in 2002. Deferred Tax Assets The Company records a valuation allowance to reduce the carrying value of its deferred tax assets to an amount that is more likely than not to be realized. While the Company has considered future taxable income and prudent and feasible tax planning strategies in assessing the need for the valuation allowance, should the Company determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the carrying value of the deferred tax assets would be charged to income in the period in which such determination was made. Pension Benefits The Company sponsors pension plans covering substantially all nonunion employees who meet eligibility requirements. Several statistical and other factors which attempt to anticipate future events are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company, within certain guidelines. In addition, the Company's actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate the projected benefit obligation. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension expense recorded by the Company in future periods. Results Of Operations 2001 Compared to 2000 Net Income The Company reported net income of $9.5 million or $1.08 per share for the fiscal year 2001 compared with net income of $6.3 million or $.72 per share for the fiscal year 2000. Diluted net income per share for 2001 was $1.07 compared to $.71 in 2000. Net income for 2001 was favorably impacted by an income tax benefit of approximately $2.9 million, which resulted from the settlement of certain income tax matters with the Internal Revenue Service during the year. Operating results for 2000 included nonrecurring items that increased net income for the year by approximately $3.6 million. The nonrecurring income items in 2000 included a $5.6 million gain, net of tax, on the sale of bottling territory in Kentucky and Ohio offset partially by a provision for impairment of certain fixed assets of $2.0 million, net of tax. Net Sales and Gross Margin The Company's net sales for 2001 were $1.02 billion, an increase of 2.8% compared to 2000. On a constant territory basis, net sales increased by approximately 4% in 2001 due to an increase in physical case volume of 4% with net selling price relatively unchanged compared to 2000. The growth in the Company's constant territory physical case volume was attributable to several different items. Sales of carbonated soft drinks were positively impacted by the introduction of new packaging for twelve-pack cans called Fridge Pack(TM) and line extensions for Mello Yello and diet Coke. Fridge Pack(TM) has been very popular with both retailers and consumers. The new Mello Yello flavors and diet Coke with lemon have helped these brands to grow at an increased rate. On a constant territory basis, volume for the Company's three largest selling brands, Coca-Cola classic, Sprite and diet Coke, increased during 2001 after volume declines during 2000. Sales of the Company's noncarbonated beverages comprised 8.5% of the Company's total sales volume in 2001 compared to 7% in 2000. The Company continued to experience strong growth in its bottled water, Dasani. 18
New packaging, including twelve-ounce bottles and multi-packs, contributed to an increase in volume of 52% for Dasani on a constant territory basis over 2000. New packages for POWERade, including twelve-ounce bottles, helped increase volume by 30% over prior year volume. The Company's products are sold and distributed directly by its employees to retail stores and other outlets. During 2001, approximately 78% of the Company's physical case volume was sold in the take-home channel through supermarkets, convenience stores, drug stores and mass merchandisers. However, no individual customer accounted for as much as 10% of the Company's total sales volume. While the Company's gross margin as a percentage of net sales declined in 2001 compared to 2000, it was 1.5% higher in 2001 than in 1999. Gross margin as a percentage of net sales increased from 44.2% in 1999 to 46.7% in 2000 and declined to 45.7% in 2001. The decline in the gross margin percentage in 2001 as compared to 2000 was attributable to an increase in cost of sales as a result of higher raw material costs and brand mix. Cost of Sales and Operating Expenses Cost of sales on a per unit basis increased approximately 0.9% for the year 2001 compared to 2000. Increases in raw material costs were partially offset by a package mix shift from bottles to cans and improvements in productivity. Selling, general and administrative ("S,G&A") expenses for 2001 increased by approximately 1.4% over the prior year on a constant territory basis. The increase in S,G&A expenses for 2001 was due primarily to higher employee compensation costs and an increase in sales development costs, offset by a reduction in lease expense resulting from the Company's purchase of certain assets that were previously leased and increased productivity. S,G&A expenses included an increase in the Company's allowance for doubtful accounts due to the bankruptcy filing of a large retail customer shortly after the end of the fiscal year. The Company produced, sold and delivered 4% more physical cases with 4% fewer employees than the prior year. Based on the performance of the Company's pension plan investments and lower interest rates, it is anticipated that pension expense will increase from approximately $2 million in 2001 to approximately $6 million in 2002. The Company anticipates that due to current market conditions, its costs associated with nonhealth-related insurance will increase by approximately $1.5 million in 2002. The Company anticipates that the cost increases related to its pension plan and insurance will be offset partially by increased productivity. The Company relies extensively on advertising and sales promotion in the marketing of its products. The Coca-Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures to promote sales in the local territories served by the Company. The Company also benefits from national advertising programs conducted by The Coca-Cola Company and other beverage companies. Certain of the marketing expenditures by The Coca-Cola Company and other beverage companies are made pursuant to annual arrangements. Although The Coca-Cola Company has advised the Company that it intends to provide marketing funding support in 2002, it is not obligated to do so under the Company's master bottle contract. Significant decreases in marketing support from The Coca-Cola Company or other beverage companies could adversely impact operating results of the Company. Direct marketing funding and other support from The Coca-Cola Company and other beverage companies were $56.3 million in 2001 compared to $56.8 million in 2000. In 2002, The Coca-Cola Company is providing the Company an opportunity to earn incremental marketing funding as part of a strategic growth initiative. The incremental marketing funding, which could amount to approximately $7 million for the Company and Piedmont on a combined basis, is subject to certain volume performance requirements in 2002. Depreciation expense in 2001 increased $1.4 million or 2.1% on a reported basis and $1.8 million or 2.7% on a constant territory basis from 2000. The increase was due primarily to the purchase during the second quarter 19
of 2001 of approximately $49 million of cold drink equipment that had previously been leased. This purchase was financed with the Company's lines of credit. Capital expenditures in 2001 totaled $96.7 million, which includes approximately $49 million of previously leased equipment as discussed above. Investment in Piedmont The Company's share of Piedmont's net income in 2001 was $.4 million. This compares to the Company's share of Piedmont's net income of $2.5 million in 2000. The decrease in income from Piedmont of $2.1 million resulted primarily from an increase in operating expenses. Piedmont's operating expenses increased by $10.4 million in 2001 due to higher employee compensation costs, an increase in sales development costs and an increase in management fees paid to the Company. Interest Expense Interest expense for 2001 of $44.3 million decreased by $9.0 million or 17% from 2000. The decrease in interest expense was attributable to lower average interest rates on the Company's outstanding debt and lower debt balances. The Company's overall weighted average interest rate decreased from an average of 7.3% during 2000 to an average of 6.5% during 2001. Total debt and capital lease obligations decreased from $697.2 million at December 31, 2000 to $679.3 million at December 30, 2001. Strong cash flow from operations enabled the Company to repay approximately $18 million in debt and purchase approximately $49 million of equipment previously leased. Other Income (Expense) Other expense for 2001 was $6.0 million, compared to other income of $1.0 million in 2000 and other expense of $5.4 million in 1999. The change in other income (expense) from 2000 is primarily due to nonrecurring items in 2000 that included a gain on the sale of bottling territory of $8.8 million, offset partially by a provision for impairment of certain fixed assets of $3.1 million. The Company recorded a provision for impairment of certain real estate for $.9 million in the fourth quarter of 2001. The impairment charge reflects an adjustment to estimated net realizable value of the real estate which was no longer required for the Company's ongoing operations. Also in 2001, the Company recorded a gain of $1.1 million on the sale of certain corporate transportation equipment and a loan loss provision of $1.6 million related to an outstanding loan to its equity investee, Data Ventures LLC. Income Taxes The effective tax rate for federal and state income taxes was approximately 19% in 2001 versus approximately 36% in 2000. The Company's income tax rate for 2001 was favorably impacted by the settlement of certain income tax issues with the Internal Revenue Service. 2000 Compared to 1999 Net Income The Company reported net income of $6.3 million or basic net income per share of $.72 for fiscal year 2000 compared to $3.2 million or $.38 basic net income per share for fiscal year 1999. Diluted net income per share for 2000 was $.71 compared to $.37 in 1999. Net income in 2000 included the gain on the sale of bottling territory discussed above, offset partially by a provision for impairment of certain fixed assets. Net Sales and Gross Margin Net sales for 2000 grew by 2.3% to $995 million, compared to $973 million in 1999. On a constant territory basis, net sales increased by approximately 1% due to an increase in net selling price for the year of approximately 6.5% partially offset by a decline in unit volume of approximately 5% for the year. 20
Gross margin increased by $35.5 million from 1999 to 2000 representing an 8% increase. The increase in gross margin was driven by higher selling prices, which more than offset a decline in unit volume as discussed above. The Company's gross margin as a percentage of sales increased from 44.2% in 1999 to 46.7% in 2000. On a per unit basis, gross margin increased 13% in 2000 over 1999. Cost of Sales and Operating Expenses Cost of sales on a per unit basis increased by approximately 2% in 2000. This increase was due to significantly higher costs for concentrate and increased packaging costs, offset partially by decreases in manufacturing labor and overhead expenses. S,G&A expenses increased by $31.3 million or 11% in 2000 over 1999 levels primarily due to a reduction in marketing funding received from The Coca-Cola Company. Direct marketing funding and other support from The Coca-Cola Company and other beverage companies declined from $74.7 million in 1999 to $56.8 million in 2000. The balance of the increase in S,G&A expenses was due to enhancements in employee compensation programs, higher fuel costs, costs associated with a strike by employees in certain branches of the Company's West Virginia territory (primarily security costs to protect Company personnel and assets) and compensation expense related to a restricted stock award for the Company's Chairman and Chief Executive Officer. Depreciation expense in 2000 increased $4.2 million or 7%. The increase for 2000 was due to significant capital expenditures in 1999 of $264.1 million, of which approximately $155 million related to the purchase of equipment that was previously leased. Capital expenditures in 2000 totaled $49.2 million. Investment in Piedmont The Company's share of Piedmont's net income in 2000 was $2.5 million. This compares to the Company's share of Piedmont's net loss of $2.6 million in 1999. The increase in income from Piedmont of $5.1 million was due to improved operating results at Piedmont primarily due to higher gross margin resulting from increased net selling prices. Interest Expense Interest expense increased by $2.8 million or 5.5% in 2000. The increase was primarily due to higher interest rates on the Company's floating rate debt. The Company's overall weighted average borrowing rate for 2000 was 7.3% compared to 6.8% in 1999. Other Income (Expense) Other income for 2000 was approximately $1 million, a change of $6.4 million versus other expense of $5.4 million in 1999. The change in other income (expense) in 2000 was primarily due to a gain on the sale of bottling territory of $8.8 million, before tax, offset partially by a provision for impairment of certain fixed assets of $3.1 million, before tax. Income Taxes The effective tax rate for federal and state income taxes was approximately 36% in 2000 versus approximately 35% in 1999. 21
Financial Condition Total assets increased slightly from $1.062 billion at December 31, 2000 to $1.064 billion at December 30, 2001. An increase in property, plant and equipment, including the purchase of $49 million of previously leased equipment, was offset by depreciation of property, plant and equipment and amortization of intangible assets, principally acquired franchise rights. The adoption of SFAS No. 142, as discussed above, will significantly reduce amortization of intangible assets in 2002. Working capital decreased by $68.5 million to a deficit of $54.2 million at December 30, 2001 from $14.3 million at December 31, 2000. The change in working capital was primarily due to increases in the current portion of long-term debt of $46.8 million, in accounts payable, trade of $6.9 million and in amounts due to Piedmont of $8.2 million. Total debt and capital lease obligations decreased from $697.2 million at December 31, 2000 to $679.3 million at December 30, 2001. Strong cash flow from operations enabled the Company to repay approximately $18 million in debt and purchase approximately $49 million of equipment previously leased. The Company recorded a minimum pension liability adjustment of $11.0 million, net of tax, in the fourth quarter of 2001 to reflect the difference between the fair market value of the Company's pension plan assets and the accumulated benefit obligation of the plan. Liquidity and Capital Resources Capital Resources Sources of capital for the Company include operating cash flows, bank borrowings, issuance of public or private debt and the issuance of equity securities. Management believes that the Company, through these sources, has sufficient financial resources available to maintain its current operations and provide for its current capital expenditure and working capital requirements, scheduled debt payments, interest and income tax liabilities and dividends for stockholders. The amount and frequency of future dividends will be determined by the Company's Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared in the future. Investing Activities Additions to property, plant and equipment during 2001 were $96.7 million, which included approximately $49 million of equipment that had previously been leased. Capital expenditures during 2001 were funded with cash flow from operations and short-term borrowings on the Company's available lines of credit. Leasing is used for certain capital additions when considered cost effective relative to other sources of capital. The Company currently leases two production facilities and certain distribution and administrative facilities. At the end of 2001, the Company had no material commitments for the purchase of capital assets other than those related to normal replacement of equipment. The Company considers the acquisition of bottling territories on an ongoing basis. The Company anticipates that additions to property, plant and equipment in 2002 will be in the range of $50 to $60 million for the Company and Piedmont on a combined basis. Financing Activities In January 1999, the Company filed an $800 million shelf registration for debt and equity securities. The Company has used this shelf registration to issue $250 million of long-term debentures in 1999. The Company currently has $550 million available for use under this shelf registration. 22
The Company borrows periodically under its available lines of credit. These lines of credit, in the aggregate amount of $95 million at December 30, 2001, are made available at the discretion of the three participating banks and may be withdrawn at any time by such banks. The Company has a revolving credit facility of $170 million that can be used in the event the lines of credit are not available. There were no amounts outstanding under either the lines of credit or the revolving credit facility as of December 30, 2001. The Company intends to refinance its short-term debt maturities with currently available lines of credit and to negotiate a new revolving credit facility to replace the current facility that matures in December 2002. The Company is a member of two cooperatives and guarantees a portion of these cooperatives' debt. The total of all debt guarantees on December 30, 2001 was $37.4 million. The Company currently intends to refinance $97.5 million of debt that matures at Piedmont in May 2002 through its available credit facilities, which include its $170 million revolving credit facility and a shelf registration, of which approximately $550 million is available for use. The Company currently plans to loan $97.5 million to Piedmont to repay the debt which matures in May 2002. It is anticipated that Piedmont will pay the Company interest based on a spread over the Company's average cost of funds. With regards to the Company's $170 million term loan agreement, the Company must maintain its public debt ratings at investment grade as determined by both Moody's and Standard & Poor's. If the Company's public debt ratings fall below investment grade within 90 days after the public announcement of certain designated events and such ratings stay below investment grade for an additional 40 days, a trigger event resulting in a default occurs. The Company does not anticipate a trigger event will occur. Interest Rate Hedging The Company periodically uses interest rate hedging products to modify risk from interest rate fluctuations. The Company has historically altered its fixed/floating rate mix based upon anticipated cash flows from operations relative to the Company's debt level and the potential impact of increases in interest rates on the Company's overall financial condition. Sensitivity analyses are performed to review the impact on the Company's financial position and coverage of various interest rate movements. The Company does not use derivative financial instruments for trading purposes nor does it use leveraged financial instruments. In October 2001, the Company terminated two interest rate swaps with a total notional amount of $100 million. The gain of $6.7 million from the termination of these swaps is being amortized as an adjustment to interest expense over 7.5 years, the remaining term of the initial swap agreements which corresponds to the life of the debt instrument being hedged. In 2002, interest expense will be approximately $.7 million lower than in 2001 as a result of this termination. In December 2001, two interest rate swap agreements were entered into with a total notional amount of $46 million. These new swap agreements allowed the Company to fix the interest rate on certain variable rate lease obligations and will be accounted for as cash flow hedges. The weighted average interest rate of the debt portfolio as of December 30, 2001 was 5.7% compared to 7.1% at the end of 2000. The Company's overall weighted average borrowing rate on its long-term debt in 2001 decreased to 6.5% from 7.3% in 2000. Approximately 34% of the Company's debt portfolio of $676.9 million as of December 30, 2001 was maintained on a floating rate basis and is subject to changes in short-term interest rates. An increase in interest rates of 1% would have resulted in an increase in interest expense of approximately $2.2 million on a pre-tax basis in 2001. Forward-looking Statements This Annual Report to Stockholders, as well as information included in future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral 23
statements issued by or on behalf of the Company, contains, or may contain, several forward-looking management comments and other statements that reflect management's current outlook for future periods. These statements include, among others, statements relating to: the consolidation of results of operations, financial position and cash flows of Piedmont with those of the Company, the effects of the adoption of SFAS No. 142 and SFAS No. 144, the Company's focus on key long-term objectives, including increasing per capita consumption, operating cash flow, free cash flow and stockholder value, anticipated increases in pension expense, anticipated costs associated with nonhealth-related insurance, anticipated increased productivity, potential marketing support from The Coca-Cola Company, sufficiency of financial resources, anticipated additions to property, plant and equipment, the amount and frequency of future dividends, refinancing of short-term debt maturities, negotiation of a new revolving credit facility, refinancing of certain debt at Piedmont, Piedmont's payment of interest to the Company and management's belief that a trigger event will not occur under the Company's $170 million term loan agreement. These statements and expectations are based on the current available competitive, financial and economic data along with the Company's operating plans, and are subject to future events and uncertainties. Among the events or uncertainties which could adversely affect future periods are: lower than expected net pricing resulting from increased marketplace competition, changes in how significant customers market our products, an inability to meet performance requirements for expected levels of marketing support payments from The Coca-Cola Company, an inability to meet requirements under bottling contracts, the inability of our aluminum can or PET bottle suppliers to meet our demand, material changes from expectations in the cost of raw materials, higher than expected fuel prices, an inability to meet projections for performance in acquired bottling territories and unfavorable interest rate fluctuations. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to certain market risks that are inherent in the Company's financial instruments, which arise in the ordinary course of business. The Company may enter into derivative financial instrument transactions to manage or reduce market risk. The Company does not enter into derivative financial instrument transactions for trading purposes. A discussion of the Company's primary market risk exposure in financial instruments is presented below. Long-Term Debt The Company is subject to interest rate risk on its long-term fixed interest rate debt. Borrowings under lines of credit and other variable rate long-term debt do not give rise to significant interest rate risk because these borrowings either have maturities of less than three months or have variable interest rates. All other things being equal, the fair market value of the Company's debt with a fixed interest rate will increase as interest rates decline and the fair market value of the Company's debt will decrease as interest rates rise. This exposure to interest rate risk is generally managed by borrowing funds with a variable interest rate or using interest rate swaps to effectively change fixed interest rate borrowings to variable interest rate borrowings. The Company generally maintains between 40% and 60% of total borrowings at variable interest rates after taking into account all of the interest rate hedging activities. While this is the target range, the financial position of the Company and market conditions may result in strategies outside of this range at certain points in time. As it relates to the Company's variable rate debt, if market interest rates average 1% more in 2002 than the rates as of December 30, 2001, interest expense for 2002 would increase by $2.1 million. If market interest rates had averaged 1% more in 2001 than the rates at December 31, 2000, interest expense for 2001 would have increased by $2.7 million. These amounts were determined by calculating the effect of the hypothetical interest rate on our variable rate debt after giving consideration to all our interest rate hedging activities. This sensitivity analysis assumes that there are no changes in the Company's financial structure. 24
Raw Material and Commodity Price Risk The Company is subject to commodity price risk arising from price movements for certain commodities included as part of its raw materials. The Company generally manages this risk by entering into long-term contracts with adjustable prices. The Company has not used derivative commodity instruments in the management of this risk. 25
Item 8. Financial Statements and Supplementary Data COCA-COLA BOTTLING CO. CONSOLIDATED Consolidated Balance Sheets <TABLE> <CAPTION> Dec. 30, 2001 Dec. 31, 2000 ------------- ------------- In Thousands (Except Share Data) <S> <C> <C> ASSETS Current assets: Cash............................................................................... $ 16,912 $ 8,425 Accounts receivable, trade, less allowance for doubtful accounts of $1,863 and $918 63,974 62,661 Accounts receivable from The Coca-Cola Company..................................... 3,935 5,380 Accounts receivable, other......................................................... 5,253 8,247 Inventories........................................................................ 39,916 40,502 Prepaid expenses and other current assets.......................................... 13,379 14,026 ---------- ---------- Total current assets............................................................ 143,369 139,241 ---------- ---------- Property, plant and equipment, net................................................. 462,689 437,926 Investment in Piedmont Coca-Cola Bottling Partnership.............................. 60,203 62,730 Other assets....................................................................... 52,140 60,846 Franchise rights and goodwill, net................................................. 335,662 347,207 Other identifiable intangible assets, net.......................................... 10,396 14,147 ---------- ---------- Total........................................................................... $1,064,459 $1,062,097 ========== ========== </TABLE> See Accompanying Notes to Consolidated Financial Statements. 26
COCA-COLA BOTTLING CO. CONSOLIDATED Consolidated Balance Sheets <TABLE> <CAPTION> Dec. 30, 2001 Dec. 31, 2000 ------------- ------------- In Thousands (Except Share Data) <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Portion of long-term debt payable within one year...................... $ 56,708 $ 9,904 Current portion of obligations under capital leases.................... 1,489 3,325 Accounts payable, trade................................................ 28,370 21,477 Accounts payable to The Coca-Cola Company.............................. 7,925 3,802 Other accrued liabilities.............................................. 49,169 45,321 Due to Piedmont Coca-Cola Bottling Partnership......................... 24,682 16,436 Accrued compensation................................................... 17,350 14,201 Accrued interest payable............................................... 11,878 10,483 ---------- ---------- Total current liabilities........................................... 197,571 124,949 ---------- ---------- Deferred income taxes.................................................. 133,743 148,655 Other liabilities...................................................... 94,973 76,061 Obligations under capital leases....................................... 935 1,774 Long-term debt......................................................... 620,156 682,246 ---------- ---------- Total liabilities................................................... 1,047,378 1,033,685 ---------- ---------- Commitments and Contingencies (Note 11) Stockholders' Equity: Convertible Preferred Stock, $100.00 par value: Authorized-50,000 shares; Issued-None Nonconvertible Preferred Stock, $100.00 par value: Authorized-50,000 shares; Issued-None Preferred Stock, $.01 par value: Authorized-20,000,000 shares; Issued-None Common Stock, $1.00 par value: Authorized-30,000,000 shares; Issued-9,454,651 shares............... 9,454 9,454 Class B Common Stock, $1.00 par value: Authorized-10,000,000 shares; Issued-2,989,166 and 2,969,166 shares. 2,989 2,969 Class C Common Stock, $1.00 par value: Authorized-20,000,000 shares; Issued-None Capital in excess of par value......................................... 91,004 99,020 Accumulated deficit.................................................... (12,307) (21,777) Accumulated other comprehensive loss................................... (12,805) ---------- ---------- 78,335 89,666 ---------- ---------- Less-Treasury stock, at cost: Common-3,062,374 shares............................................. 60,845 60,845 Class B Common-628,114 shares....................................... 409 409 ---------- ---------- Total stockholders' equity.......................................... 17,081 28,412 ---------- ---------- Total.................................................................. $1,064,459 $1,062,097 ========== ========== </TABLE> See Accompanying Notes to Consolidated Financial Statements. 27
COCA-COLA BOTTLING CO. CONSOLIDATED Consolidated Statements of Operations <TABLE> <CAPTION> Fiscal Year ----------------------------- 2001 2000 1999 ---------- -------- -------- In Thousands (Except Per Share Data) <S> <C> <C> <C> Net sales (includes sales to Piedmont of $71,170, $69,539 and $68,046).......................................................... $1,022,686 $995,134 $972,551 Cost of sales, excluding depreciation shown below (includes $53,033, $53,463 and $56,439 related to sales to Piedmont)................. 555,570 530,241 543,113 ---------- -------- -------- Gross margin........................................................ 467,116 464,893 429,438 ---------- -------- -------- Selling, general and administrative expenses, excluding depreciation shown below....................................................... 323,668 323,223 291,907 Depreciation expense................................................ 66,134 64,751 60,567 Amortization of goodwill and intangibles............................ 15,296 14,712 13,734 Restructuring expense............................................... 2,232 ---------- -------- -------- Income from operations.............................................. 62,018 62,207 60,998 ---------- -------- -------- Interest expense.................................................... 44,322 53,346 50,581 Other income (expense), net......................................... (6,000) 974 (5,431) ---------- -------- -------- Income before income taxes.......................................... 11,696 9,835 4,986 Income taxes........................................................ 2,226 3,541 1,745 ---------- -------- -------- Net income.......................................................... $ 9,470 $ 6,294 $ 3,241 ========== ======== ======== Basic net income per share.......................................... $ 1.08 $ .72 $ .38 ========== ======== ======== Diluted net income per share........................................ $ 1.07 $ .71 $ .37 ========== ======== ======== Weighted average number of common shares outstanding................ 8,753 8,733 8,588 Weighted average number of common shares outstanding--assuming dilution.......................................................... 8,821 8,822 8,708 ========== ======== ======== </TABLE> See Accompanying Notes to Consolidated Financial Statements. 28
COCA-COLA BOTTLING CO. CONSOLIDATED Consolidated Statements of Cash Flows <TABLE> <CAPTION> Fiscal Year ----------------------------- 2001 2000 1999 -------- -------- --------- In Thousands <S> <C> <C> <C> Cash Flows from Operating Activities Net income.............................................................. $ 9,470 $ 6,294 $ 3,241 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense................................................... 66,134 64,751 60,567 Amortization of goodwill and intangibles............................... 15,296 14,712 13,734 Deferred income taxes.................................................. 2,226 3,541 1,745 Gain on sale of bottling territory..................................... (8,829) Provision for impairment of property, plant and equipment.............. 947 3,066 Losses on sale of property, plant and equipment........................ 1,297 2,284 2,755 Amortization of debt costs............................................. 830 938 836 Amortization of deferred gain related to terminated interest rate swaps (1,183) (819) (563) Undistributed (earnings) losses of Piedmont............................ (417) (2,514) 2,631 (Increase) decrease in current assets less current liabilities......... 32,770 (2,554) 9,639 (Increase) decrease in other noncurrent assets......................... 501 (506) (8,451) Increase (decrease) in other noncurrent liabilities.................... (6,010) 3,868 9,702 Other.................................................................. 82 58 334 -------- -------- --------- Total adjustments....................................................... 112,473 77,996 92,929 -------- -------- --------- Net cash provided by operating activities............................... 121,943 84,290 96,170 -------- -------- --------- Cash Flows from Financing Activities Proceeds from the issuance of long-term debt............................ 251,165 Repayment of current portion of long-term debt.......................... (2,385) (26,750) (30,115) Proceeds from (repayment of) lines of credit, net....................... (12,900) (33,700) 10,200 Cash dividends paid..................................................... (8,753) (8,733) (8,549) Payments on capital lease obligations................................... (2,868) (4,528) (4,938) Termination of interest rate swap agreements............................ 6,704 (292) Debt fees paid.......................................................... (3,266) Other................................................................... (230) (387) (468) -------- -------- --------- Net cash provided by (used in) financing activities..................... (20,432) (74,390) 214,029 -------- -------- --------- Cash Flows from Investing Activities Additions to property, plant and equipment.............................. (96,684) (49,168) (264,139) Proceeds from the sale of property, plant and equipment................. 3,660 16,366 753 Acquisitions of companies, net of cash acquired......................... (723) (44,454) Proceeds from sale of bottling territory................................ 23,000 -------- -------- --------- Net cash used in investing activities................................... (93,024) (10,525) (307,840) -------- -------- --------- Net increase (decrease) in cash......................................... 8,487 (625) 2,359 -------- -------- --------- Cash at beginning of year............................................... 8,425 9,050 6,691 -------- -------- --------- Cash at end of year..................................................... $ 16,912 $ 8,425 $ 9,050 ======== ======== ========= Significant non-cash investing and financing activities................. Capital lease obligations incurred..................................... $ 456 $ 1,313 $ 14,225 Issuance of Class B Common Stock in connection with stock award........ 757 Issuance of Common Stock in connection with acquisition................ 21,961 </TABLE> See Accompanying Notes to Consolidated Financial Statements. 29
COCA-COLA BOTTLING CO. CONSOLIDATED Consolidated Statements of Changes in Stockholders' Equity <TABLE> <CAPTION> Accumulated Class B Capital in Other Common Common Excess of Accum. Comprehensive Treasury Stock Stock Par Value Deficit Loss Stock Total ------ ------- ---------- -------- ------------- -------- -------- In Thousands <S> <C> <C> <C> <C> <C> <C> <C> Balance on January 3, 1999........... $9,086 $2,969 $ 94,709 $(31,312) $ -- $(61,254) $ 14,198 Net income........................... 3,241 3,241 Cash dividends paid.................. (8,549) (8,549) Issuance of Common Stock in connection with acquisition......... 368 21,593 21,961 ------ ------ -------- -------- -------- -------- -------- Balance on January 2, 2000........... $9,454 $2,969 $107,753 $(28,071) $ -- $(61,254) $ 30,851 Net income........................... 6,294 6,294 Cash dividends paid.................. (8,733) (8,733) ------ ------ -------- -------- -------- -------- -------- Balance on December 31, 2000......... $9,454 $2,969 $ 99,020 $(21,777) $ -- $(61,254) $ 28,412 Comprehensive income (loss): Net income........................... 9,470 9,470 Change in fair market value of cash flow hedges, net of tax............. 4 4 Proportionate share of Piedmont's accum. other comprehensive loss at adoption of SFAS No. 133, net of tax................................. (947) (947) Change in proportionate share of Piedmont's accum. other comprehensive loss, net of tax...... (878) (878) Minimum pension liability adjustment, net of tax.......................... (10,984) (10,984) -------- Total comprehensive income (loss).... (3,335) Cash dividends paid.................. (8,753) (8,753) Issuance of Class B Common Stock..... 20 737 757 ------ ------ -------- -------- -------- -------- -------- Balance on December 30, 2001......... $9,454 $2,989 $ 91,004 $(12,307) $(12,805) $(61,254) $ 17,081 ====== ====== ======== ======== ======== ======== ======== </TABLE> See Accompanying Notes to Consolidated Financial Statements. 30
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements (1) Significant Accounting Policies Coca-Cola Bottling Co. Consolidated (the "Company") is engaged in the production, marketing and distribution of carbonated and noncarbonated beverages, primarily products of The Coca-Cola Company. The Company operates in portions of 11 states, principally in the southeastern region of the United States. The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Acquisitions recorded as purchases are included in the statement of operations from the date of acquisition. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The fiscal years presented are the 52-week periods ended December 30, 2001, December 31, 2000 and January 2, 2000. The Company's fiscal year ends on the Sunday closest to December 31. Certain prior year amounts have been reclassified to conform to current year classifications. The Company's significant accounting policies are as follows: Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks and cash equivalents, which are highly liquid debt instruments with maturities of less than 90 days. Credit Risk of Trade Accounts Receivable The Company sells its products to large chain stores and other customers and extends credit, generally without requiring collateral, based on an ongoing evaluation of the customer's business prospects and financial condition. The Company monitors its exposure to losses on trade accounts receivable and maintains an allowance for potential losses or adjustments. The Company's trade accounts receivable are typically collected within approximately 30 days from the date of sale. Inventories Inventories are stated at the lower of cost, determined on the first-in, first-out method ("FIFO") or market. Property, Plant and Equipment Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Additions and major replacements or betterments are added to the assets at cost. Maintenance and repair costs and minor replacements are charged to expense when incurred. When assets are replaced or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and the gains or losses, if any, are reflected in income. 31
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements Software The Company adopted the provisions of the American Institute of Certified Public Accountants' Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use" in the first quarter of 1999. This statement requires capitalization of certain costs incurred in the development of internal-use software. Software is amortized using the straight-line method over its estimated useful life. Investment in Piedmont Coca-Cola Bottling Partnership Prior to January 2, 2002, the Company beneficially owned a 50% interest in Piedmont Coca-Cola Bottling Partnership ("Piedmont"). The Company accounted for its interest in Piedmont using the equity method of accounting. With respect to Piedmont, sales of soft drink products at cost, management fee revenue and the Company's share of Piedmont's results from operations are included in "Net sales" for all periods presented. See Note 3 and Note 15 for additional information. On January 2, 2002, the Company purchased an additional 4.651% interest in Piedmont from The Coca-Cola Company, increasing the Company's ownership to 54.651%. As a result of the increase in ownership, the results of operations, financial position and cash flows of Piedmont will be consolidated with those of the Company beginning in the first quarter of 2002. See Note 3 for additional information. Revenue Recognition Revenues are recognized when finished products are delivered to customers and both title and the risks and rewards of ownership are transferred. Appropriate provision is made for uncollectible accounts. Income Taxes The Company provides deferred income taxes for the tax effects of temporary differences between the financial reporting and income tax bases of the Company's assets and liabilities. Benefit Plans The Company has a noncontributory pension plan covering substantially all nonunion employees and one noncontributory pension plan covering certain union employees. Costs of the plans are charged to current operations and consist of several components of net periodic pension cost based on various actuarial assumptions regarding future experience of the plans. In addition, certain other union employees are covered by plans provided by their respective union organizations. The Company expenses amounts as paid in accordance with union agreements. The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during employees' periods of active service. Amounts recorded for benefit plans reflect estimates related to future interest rates, investment returns, employee turnover, wage increases and health care costs. The Company reviews all assumptions and estimates on an ongoing basis. Intangible Assets and Goodwill Identifiable intangible assets resulting from the acquisition of Coca-Cola bottling franchises accounted for by the purchase method are recorded based upon fair market value at the date of acquisition and are being 32
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements amortized on a straight-line basis over periods ranging from 17 to 40 years. Goodwill is being amortized on a straight-line basis over 40 years. Impairment of Long-lived Assets The Company continually monitors conditions that may affect the carrying value of its intangible or other long-lived assets. When conditions indicate potential impairment of an intangible or other long-lived asset, the Company will undertake necessary market studies and reevaluate projected future cash flows associated with the asset. When projected future cash flows, not discounted for the time value of money, are less than the carrying value of the asset, the asset will be written down to its estimated net realizable value. Net Income Per Share Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income available for common stockholders by the weighted average number of Common and Class B Common shares outstanding. Diluted EPS gives effect to all securities representing potential common shares that were dilutive and outstanding during the period. Derivative Financial Instruments On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS No. 133"), which requires that all derivative instruments be recognized in the financial statements at fair value. The adoption of SFAS No. 133 did not have a significant impact on the results of operations, financial position or cash flows during 2001. The Company uses derivative financial instruments to manage its exposure to movements in interest rates. The use of these financial instruments modifies the exposure of these risks with the intent to reduce the risk to the Company. The Company does not use financial instruments for trading purposes, nor does it use leveraged financial instruments. The Company has determined that its derivative financial instruments qualify as either fair value or cash flow hedges, having values that highly correlate with the underlying hedged exposures and have designated such instruments as hedging transactions. Credit risk related to the derivative financial instruments is considered minimal and is managed by requiring high credit standards for its counterparties and periodic settlements. Changes in fair value of derivative financial instruments are recorded as adjustments to the assets or liabilities being hedged in the statement of operations or in accumulated other comprehensive income (loss), depending on whether the derivative is designated and qualifies for hedge accounting, the type of hedge transaction represented and the effectiveness of the hedge. Insurance Programs In general, the Company is self-insured for costs of casualty claims and medical claims. The Company uses commercial insurance for casualty claims and medical claims as a risk reduction strategy to minimize catastrophic losses. Casualty losses are provided for using actuarial assumptions and procedures followed in the insurance industry, adjusted for company-specific history and expectations. 33
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements Marketing Costs and Support Arrangements The Company directs various advertising and marketing programs supported by The Coca-Cola Company or other franchisers. Under these programs, certain costs incurred by the Company are reimbursed by the applicable franchiser. Franchiser funding is recognized when performance measures are met or as funded costs are incurred. (2) Acquisitions And Divestitures On May 28, 1999, the Company acquired all of the outstanding capital stock of Carolina Coca-Cola Bottling Company, Inc. ("Carolina") in exchange for 368,482 shares of the Company's Common Stock, installment notes and cash. The total purchase price was approximately $37 million. Carolina was a Coca-Cola bottler with operations in central South Carolina. On October 29, 1999, the Company acquired substantially all of the outstanding capital stock of Lynchburg Coca-Cola Bottling Company, Inc. ("Lynchburg") for approximately $24 million, in cash. Lynchburg was a Coca-Cola bottler with operations in central Virginia. The Company used its lines of credit for the cash portion of the acquisitions described above. These acquisitions have been accounted for under the purchase method of accounting. On September 29, 2000, the Company sold substantially all of its bottling territory in the states of Kentucky and Ohio to Coca-Cola Enterprises Inc. The Company received cash proceeds of $23.0 million related to the sale of this territory and certain other operating assets. The Company recorded a pre-tax gain of $8.8 million as a result of this sale. The bottling territory sold represented approximately 3% of the Company's annual sales volume. (3) Investment in Piedmont Coca-Cola Bottling Partnership On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont to distribute and market carbonated and noncarbonated beverages primarily in certain portions of North Carolina and South Carolina. Prior to January 2, 2002, the Company and The Coca-Cola Company, through their respective subsidiaries, each beneficially owned a 50% interest in Piedmont. The Company provides a portion of the soft drink products for Piedmont at cost and receives a fee for managing the operations of Piedmont pursuant to a management agreement. Summarized financial information for Piedmont was as follows: <TABLE> <CAPTION> Dec. 30, 2001 Dec. 31, 2000 ------------- ------------- In Thousands <S> <C> <C> Current assets................................... $ 55,848 $ 48,068 Noncurrent assets................................ 309,664 319,788 -------- -------- Total assets..................................... $365,512 $367,856 ======== ======== Current liabilities.............................. $114,132 $ 17,342 Noncurrent liabilities........................... 130,974 225,054 -------- -------- Total liabilities................................ 245,106 242,396 Partners' equity................................. 126,294 125,460 Accumulated other comprehensive loss............. (5,888) -------- -------- Total liabilities and partners' equity........... $365,512 $367,856 ======== ======== Company's equity investment...................... $ 60,203 $ 62,730 ======== ======== </TABLE> 34
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements <TABLE> <CAPTION> Fiscal Year -------------------------- 2001 2000 1999 -------- -------- -------- In Thousands <S> <C> <C> <C> Net sales.......................................... $296,900 $286,781 $278,202 Cost of sales...................................... 153,643 147,671 152,042 -------- -------- -------- Gross margin....................................... 143,257 139,110 126,160 Income from operations............................. 13,330 18,948 7,803 Net income (loss).................................. $ 834 $ 5,028 $ (5,262) ======== ======== ======== Company's equity in net income (loss).............. $ 417 $ 2,514 $ (2,631) ======== ======== ======== </TABLE> The Company currently intends to refinance $97.5 million of debt that matures at Piedmont in May 2002 through its available credit facilities, which include its $170 million revolving credit facility and a shelf registration, of which approximately $550 million is available for use. The Company currently plans to loan $97.5 million to Piedmont to repay the debt which matures in May 2002. It is anticipated that Piedmont will pay the Company interest based on a spread over the Company's average cost of funds. On January 2, 2002, the Company purchased an additional 4.651% interest in Piedmont from The Coca-Cola Company, increasing the Company's ownership in Piedmont to 54.651%. As a result of the increase in ownership, the results of operations, financial position and cash flows of Piedmont will be consolidated with those of the Company beginning in the first quarter of 2002. The following unaudited proforma condensed financial information reflects the consolidation of Piedmont's financial position and results of operations with those of the Company as if the additional purchase had occurred at the beginning of 2001. <TABLE> <CAPTION> Dec. 30, 2001 ------------- In Thousands <S> <C> Current assets.................................................. $ 174,535 Noncurrent assets............................................... 1,172,271 ---------- Total assets.................................................... $1,346,806 ========== Current liabilities............................................. $ 287,671 Noncurrent liabilities.......................................... 988,057 ---------- Total liabilities............................................... 1,275,728 Minority interest............................................... 54,603 Stockholders' equity............................................ 16,475 ---------- Total liabilities, minority interest and stockholders' equity... $1,346,806 ========== </TABLE> <TABLE> <CAPTION> Fiscal Year 2001 ----------- In Thousands <S> <C> Net sales........................................................ $1,237,018 Cost of sales.................................................... 656,180 ---------- Gross margin..................................................... 580,838 Income from operations........................................... 74,827 Minority interest................................................ 378 Net income....................................................... $ 9,034 ========== </TABLE> 35
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements Piedmont has several interest rate swap agreements that have been designated as cash flow hedges. The Company's proportionate share of Piedmont's accumulated other comprehensive loss, net of tax, resulting from the effect of adoption of SFAS No. 133 and the impact during 2001 related to Piedmont were as follows: <TABLE> <CAPTION> Fiscal Year 2001 ----------- In Thousands <S> <C> Impact of adoption, net of tax.............................................................. $ 947 Change in fair market value of cash flow hedges during 2001, net of tax..................... 878 ------ Company's proportionate share of Piedmont's accumulated other comprehensive loss, net of tax $1,825 ====== </TABLE> (4) Inventories Inventories were summarized as follows: <TABLE> <CAPTION> Dec. 30, Dec. 31, 2001 2000 -------- -------- In Thousands <S> <C> <C> Finished products.......................................... $23,637 $22,907 Manufacturing materials.................................... 11,893 13,330 Plastic pallets and other.................................. 4,386 4,265 ------- ------- Total inventories.......................................... $39,916 $40,502 ======= ======= </TABLE> (5) Property, Plant and Equipment The principal categories and estimated useful lives of property, plant and equipment were as follows: <TABLE> <CAPTION> Dec. 30, Dec. 31, Estimated 2001 2000 Useful Lives -------- -------- ------------ In Thousands <S> <C> <C> <C> Land........................................... $ 11,158 $ 11,311 Buildings...................................... 95,338 97,012 10-50 years Machinery and equipment........................ 93,658 94,652 5-20 years Transportation equipment....................... 140,512 133,886 4-13 years Furniture and fixtures......................... 38,119 36,519 4-10 years Vending equipment.............................. 334,975 285,714 6-13 years Leasehold and land improvements................ 40,969 39,597 5-20 years Software for internal use...................... 21,850 17,207 3-7 years Construction in progress....................... 1,908 1,162 -------- -------- Total property, plant and equipment, at cost... 778,487 717,060 Less: Accumulated depreciation and amortization 315,798 279,134 -------- -------- Property, plant and equipment, net............. $462,689 $437,926 ======== ======== </TABLE> In the fourth quarter of 2001, the Company recorded a provision for impairment of certain real estate for $.9 million, which was classified in "Other income (expense), net." The impairment charge reflects an adjustment to estimated net realizable value of the real estate which was no longer required for the Company's ongoing operations. In the third quarter of 2000, the Company recorded a provision for impairment of certain fixed assets for $3.1 million, which was classified in "Other income (expense), net." 36
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements (6) Franchise Rights And Goodwill <TABLE> <CAPTION> Estimated Dec. 30, Dec. 31, Useful 2001 2000 Lives -------- -------- --------- In Thousands <S> <C> <C> <C> Franchise rights................................. $353,388 $353,388 40 years Goodwill......................................... 112,097 112,097 40 years -------- -------- Franchise rights and goodwill.................... 465,485 465,485 Less: Accumulated amortization................... 129,823 118,278 -------- -------- Franchise rights and goodwill, net............... $335,662 $347,207 ======== ======== </TABLE> (7) Other Identifiable Intangible Assets <TABLE> <CAPTION> Estimated Dec. 30, Dec. 31, Useful 2001 2000 Life -------- -------- ----------- In Thousands <S> <C> <C> <C> Customer lists................................. $54,864 $54,864 20 years Other.......................................... 16,316 16,316 17-23 years ------- ------- Other identifiable intangible assets........... 71,180 71,180 Less: Accumulated amortization................. 60,784 57,033 ------- ------- Other identifiable intangible assets, net...... $10,396 $14,147 ======= ======= </TABLE> (8) Long-term Debt Long-term debt was summarized as follows: <TABLE> <CAPTION> Interest Interest Dec. 30, Dec. 31, Maturity Rate Paid 2001 2000 -------- -------- ------------- -------- -------- In Thousands <S> <C> <C> <C> <C> <C> Lines of Credit........................ 2002 Varies $ -- $ 12,900 Term Loan Agreement.................... 2004 2.64% Varies 85,000 85,000 Term Loan Agreement.................... 2005 2.64% Varies 85,000 85,000 Medium-Term Notes...................... 2002 8.56% Semi-annually 47,000 47,000 Debentures............................. 2007 6.85% Semi-annually 100,000 100,000 Debentures............................. 2009 7.20% Semi-annually 100,000 100,000 Debentures............................. 2009 6.38% Semi-annually 250,000 250,000 Other notes payable.................... 2002- 5.75%- Varies 9,864 12,250 2006 10.00% ---- ----- ------------- -------- -------- Less: Portion of long-term debt payable 676,864 692,150 within one year...................... 56,708 9,904 -------- -------- Long-term debt......................... $620,156 $682,246 ======== ======== </TABLE> 37
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements The principal maturities of long-term debt outstanding on December 30, 2001 were as follows: <TABLE> <CAPTION> In Thousands <S> <C> 2002................ $ 56,708 2003................ 31 2004................ 85,025 2005................ 85,020 2006................ 80 Thereafter.......... 450,000 -------- Total long-term debt $676,864 ======== </TABLE> The Company has a revolving credit facility for borrowings of up to $170 million that matures in December 2002. The Company intends to negotiate a new revolving credit facility to replace the current facility. The agreement contains covenants which establish ratio requirements related to debt, interest expense and cash flow. A facility fee of 1/8% per year on the banks' commitment is payable quarterly. There was no outstanding balance under this facility as of December 30, 2001. The Company borrows periodically under its available lines of credit. These lines of credit, in the aggregate amount of $95 million at December 30, 2001, are made available at the discretion of the three participating banks and may be withdrawn at any time by such banks. There were no borrowings outstanding under the lines of credit as of December 30, 2001. The Company intends to refinance short-term maturities with currently available lines of credit. In January 1999, the Company filed an $800 million shelf registration for debt and equity securities. The Company used this shelf registration to issue $250 million of long-term debentures in 1999. The Company currently has $550 million available for use under this shelf registration. After taking into account all of the interest rate hedging activities, the Company had a weighted average interest rate of 5.7% for the debt portfolio as of December 30, 2001 compared to 7.1% at December 31, 2000. The Company's overall weighted average borrowing rate on its long-term debt was 6.5%, 7.3% and 6.8% for 2001, 2000 and 1999, respectively. As of December 30, 2001, approximately $230 million or 34% of the total debt portfolio was subject to changes in short-term interest rates. The Company considers all floating rate debt and fixed rate debt with a maturity of less than one year to be subject to changes in short-term interest rates. If average interest rates for the floating rate component of the Company's debt portfolio increased by 1%, annual interest expense for the year ended December 30, 2001 would have increased by approximately $2.2 million and net income would have been reduced by approximately $1.4 million. With regards to the Company's $170 million term loan agreement, the Company must maintain its public debt ratings at investment grade as determined by both Moody's and Standard & Poor's. If the Company's public debt ratings fall below investment grade within 90 days after the public announcement of certain designated events and such ratings stay below investment grade for an additional 40 days, a trigger event resulting in a default occurs. The Company does not anticipate a trigger event will occur. 38
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements (9) Derivative Financial Instruments The Company uses interest rate hedging products to modify risk from interest rate fluctuations. The Company has historically used derivative financial instruments from time to time to achieve a targeted fixed/floating interest rate mix. This target is based upon anticipated cash flows from operations relative to the Company's debt level and the potential impact of increases in interest rates on the Company's overall financial condition. The Company does not use derivative financial instruments for trading or other speculative purposes nor does it use leveraged financial instruments. All of the Company's outstanding interest rate swap agreements are LIBOR-based. Derivative financial instruments were summarized as follows: <TABLE> <CAPTION> December 30, 2001 December 31, 2000 ------------------ ------------------- Notional Remaining Notional Remaining Amount Term Amount Term -------- --------- -------- ---------- In Thousands <S> <C> <C> <C> <C> Interest rate swap-fixed.... $27,000 .95 years Interest rate swap-fixed.... 19,000 .95 years Interest rate swaps-floating $100,000 8.25 years </TABLE> In October 2001, the Company terminated two interest rate swaps with a total notional amount of $100 million. The gain of $6.7 million from the termination of these swaps is being amortized as an adjustment to interest expense over 7.5 years, the remaining term of the initial swap agreements which corresponds to the life of the debt instrument being hedged. In December 2001, interest rate swap agreements were entered into with a total notional amount of $46 million. These new swap agreements are accounted for as cash flow hedges. These agreements allowed the Company to fix the interest rate on certain variable rate lease obligations. The counterparties to these contractual arrangements are major financial institutions with which the Company also has other financial relationships. The Company is exposed to credit loss in the event of nonperformance by these counterparties. However, the Company does not anticipate nonperformance by the other parties. (10) Fair Values of Financial Instruments The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments: Cash, Accounts Receivable and Accounts Payable: The fair values of cash, accounts receivable and accounts payable approximate carrying values due to the short maturity of these financial instruments. Public Debt: The fair values of the Company's public debt are based on estimated market prices. Non-Public Variable Rate Long-Term Debt: The carrying amounts of the Company's variable rate borrowings approximate their fair values. 39
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements Non-Public Fixed Rate Long-Term Debt: The fair values of the Company's fixed rate long-term borrowings are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Derivative Financial Instruments: Fair values for the Company's interest rate swaps are based on current settlement values. The carrying amounts and fair values of the Company's long-term debt and derivative financial instruments were as follows: <TABLE> <CAPTION> December 30, 2001 December 31, 2000 ------------------ ----------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- In Thousands <S> <C> <C> <C> <C> Public debt............................ $497,000 $493,993 $497,000 $480,687 Non-public variable rate long-term debt 170,000 170,000 182,900 182,900 Non-public fixed rate long-term debt... 9,864 9,868 12,250 12,433 Interest rate swaps.................... (7) (7) 1,669 </TABLE> The fair values of the interest rate swaps at December 30, 2001 represent the estimated amount the Company would have received upon termination of these agreements. The fair values of the interest rate swaps at December 31, 2000 represent the estimated amount the Company would have had to pay to terminate these agreements. (11) Commitments and Contingencies Operating lease payments are charged to expense as incurred. Such rental expenses included in the consolidated statements of operations were $12.4 million, $15.7 million and $13.7 million for 2001, 2000 and 1999, respectively. The following is a summary of future minimum lease payments for all capital leases and operating leases as of December 30, 2001. <TABLE> <CAPTION> Capital Operating Leases Leases Total ------- --------- ------- In Thousands <S> <C> <C> <C> 2002..................................................... $1,489 $ 9,905 $11,394 2003..................................................... 798 9,144 9,942 2004..................................................... 313 8,818 9,131 2005..................................................... 8,149 8,149 2006..................................................... 7,980 7,980 Thereafter............................................... 24,493 24,493 ------ ------- ------- Total minimum lease payments............................. $2,600 $68,489 $71,089 ======= ======= Less: Amounts representing interest...................... 176 ------ Present value of minimum lease payments.................. 2,424 Less: Current portion of obligations under capital leases 1,489 ------ Long-term portion of obligations under capital leases.... $ 935 ====== </TABLE> The Company is a member of South Atlantic Canners, Inc. ("SAC"), a manufacturing cooperative, from which it is obligated to purchase a specified number of cases of finished product on an annual basis. The 40
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements contractual minimum annual purchases required from SAC are approximately $40 million. See Note 15 to the consolidated financial statements for additional information concerning SAC. The Company guarantees a portion of the debt for one cooperative from which the Company purchases plastic bottles. The Company also guarantees a portion of debt for SAC. See Note 15 to the consolidated financial statements for additional information concerning these financial guarantees. The total of all debt guarantees on December 30, 2001 was $37.4 million. The Company entered into a purchase agreement for aluminum cans on an annual basis through 2003. The estimated annual purchases under this agreement are approximately $100 million for 2002 and 2003. On August 3, 1999, North American Container, Inc. filed a complaint in the United States District Court for the Northern District of Texas against the Company and 44 other defendants. By its First Amended Complaint filed in April 2000, the plaintiff seeks to enforce United States Reissue Patent No. RIE 36,639 and alleges that the plastic containers used by the Company in connection with the distribution of soft drinks and other products infringe the patent. The Company has notified its suppliers of the lawsuit and has asserted indemnification claims against them. The Company's suppliers have assumed the defense of the claim pursuant to a written agreement providing for indemnification. The Company's suppliers are vigorously defending the claim and the Company believes it has meritorious defenses against the imposition of any liability in this action. The Company is involved in other various claims and legal proceedings which have arisen in the ordinary course of its business. The Company believes that the ultimate disposition of the above noted litigation and its other claims and legal proceedings will not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. (12) Income Taxes The provision for income taxes consisted of the following: <TABLE> <CAPTION> Fiscal Year -------------------- 2001 2000 1999 ------ ------ ------ In Thousands <S> <C> <C> <C> Current: Federal.............. $ -- $ -- $ -- ------ ------ ------ Total current provision. -- -- -- ------ ------ ------ Deferred: Federal.............. 891 865 206 State................ 1,335 2,676 1,539 ------ ------ ------ Total deferred provision 2,226 3,541 1,745 ------ ------ ------ Income tax expense...... $2,226 $3,541 $1,745 ====== ====== ====== </TABLE> 41
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements Deferred income taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities and available tax credit carryforwards. Temporary differences and carryforwards that comprised deferred income tax assets and liabilities were as follows: <TABLE> <CAPTION> Dec. 30, 2001 Dec. 31, 2000 ------------- ------------- In Thousands <S> <C> <C> Intangible assets..................................................... $ 80,506 $ 105,746 Depreciation.......................................................... 94,955 83,943 Investment in Piedmont................................................ 25,202 27,428 Lease obligations..................................................... -- 19,775 Other................................................................. 18,543 13,315 --------- --------- Gross deferred income tax liabilities................................. 219,206 250,207 --------- --------- Net operating loss carryforwards...................................... (60,334) (80,446) Leased assets......................................................... -- (15,820) AMT credits........................................................... (17,562) (12,030) Deferred compensation................................................. (7,082) (4,152) Postretirement benefits............................................... (12,101) (11,858) Interest rate swap terminations....................................... (4,748) (2,624) --------- --------- Gross deferred income tax assets...................................... (101,827) (126,930) --------- --------- Valuation allowance for deferred tax assets........................... 34,526 35,048 --------- --------- Net deferred income tax liabilities................................... 151,905 158,325 --------- --------- Tax benefit of minimum pension liability adjustment................... (6,732) Tax benefit related to Piedmont's accumulated other comprehensive loss (1,119) Current deferred tax assets........................................... (10,311) (9,670) --------- --------- Deferred income tax liability......................................... $ 133,743 $ 148,655 ========= ========= </TABLE> Except for amounts for which a valuation allowance has been provided, the Company believes the other deferred tax assets will be realized primarily through the reversal of existing temporary differences. The valuation allowance of $34.5 million and $35.0 million as of December 30, 2001 and December 31, 2000, respectively, relates primarily to state net operating loss carryforwards. Reported income tax expense is reconciled to the amount computed on the basis of income before income taxes at the statutory rate as follows: <TABLE> <CAPTION> Fiscal Year ----------------------- 2001 2000 1999 ------- ------ ------ In Thousands <S> <C> <C> <C> Statutory expense............................ $ 4,094 $3,442 $1,745 Amortization of franchise and goodwill assets 486 418 373 State income taxes, net of federal benefit... 307 548 257 Valuation allowance change................... (522) (539) (538) Favorable tax settlement..................... (2,850) Other........................................ 711 (328) (92) ------- ------ ------ Income tax expense........................... $ 2,226 $3,541 $1,745 ======= ====== ====== </TABLE> 42
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements On December 30, 2001, the Company had $58 million and $87 million of federal and state net operating losses, respectively, available to reduce future income taxes. The net operating loss carryforwards expire in varying amounts through 2021. (13) Capital Transactions On March 8, 1989, the Company granted J. Frank Harrison, Jr. an option for the purchase of 100,000 shares of Common Stock exercisable at the closing market price of the stock on the day of grant. The closing market price of the stock on March 8, 1989 was $27.00 per share. The option is exercisable, in whole or in part, at any time at the election of Mr. Harrison, Jr. over a period of 15 years from the date of grant. This option has not been exercised with respect to any such shares. On August 9, 1989, the Company granted J. Frank Harrison, III an option for the purchase of 150,000 shares of Common Stock exercisable at the closing market price of the stock on the day of grant. The closing market price of the stock on August 9, 1989 was $29.75 per share. The option may be exercised, in whole or in part, during a period of 15 years beginning on the date of grant. This option has not been exercised with respect to any such shares. Effective November 23, 1998, J. Frank Harrison, Jr. exchanged 792,796 shares of the Company's Common Stock for 792,796 shares of Class B Common Stock in a transaction previously approved by the Company's Board of Directors (the "Harrison Exchange"). Mr. Harrison, Jr. already owned the shares of Common Stock used to make this exchange. This exchange took place in connection with a series of simultaneous transactions related to Mr. Harrison, Jr.'s personal estate planning. Pursuant to a Stock Rights and Restriction Agreement dated January 27, 1989, between the Company and The Coca-Cola Company, in the event that the Company issues new shares of Class B Common Stock upon the exchange or exercise of any security, warrant or option of the Company which results in The Coca-Cola Company owning less than 20% of the outstanding shares of Class B Common Stock and less than 20% of the total votes of all outstanding shares of all classes of the Company, The Coca-Cola Company has the right to exchange shares of Common Stock for shares of Class B Common Stock in order to maintain its ownership of 20% of the outstanding shares of Class B Common Stock and 20% of the total votes of all outstanding shares of all classes of the Company. Under the Stock Rights and Restrictions Agreement, The Coca-Cola Company also has a preemptive right to purchase a percentage of any newly issued shares of any class as necessary to allow it to maintain ownership of both 29.67% of the outstanding shares of Common Stock of all classes and 22.59% of the total votes of all outstanding shares of all classes. Effective November 23, 1998, in connection with the Harrison Exchange and the related Harrison family limited partnership transactions, The Coca-Cola Company, in the exercise of its rights under the Stock Rights and Restrictions Agreement, exchanged 228,512 shares of the Company's Common Stock which it held for 228,512 shares of the Company's Class B Common Stock. On May 12, 1999, the stockholders of the Company approved a restricted stock award for J. Frank Harrison, III, the Company's Chairman of the Board of Directors and Chief Executive Officer, consisting of 200,000 shares of the Company's Class B Common Stock. The award provides that the shares of restricted stock vest at the rate of 20,000 shares per year over a ten-year period. The vesting of each annual installment is contingent upon the Company achieving at least 80% of the Overall Goal Achievement Factor for the six selected performance indicators used in determining bonuses for all officers under the Company's Annual Bonus Plan. In 2001, the Company achieved more than 80% of the Overall Goal Achievement Factor which resulted in the vesting of 20,000 shares, effective as of January 1, 2002. Compensation expense in 2001 related to the restricted stock award was $1.4 million. In 2000, the Company achieved more than 80% of the Overall Goal Achievement Factor which resulted in the vesting of 20,000 shares, effective as of January 1, 2001. Compensation expense in 2000 43
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements related to the restricted stock award was $1.4 million. In 1999, the Company did not achieve at least 80% of the Overall Goal Achievement Factor and thus, the 20,000 shares of restricted stock for 1999 did not vest. Shares of Class B Common Stock are convertible on a share-for-share basis into shares of Common Stock. There is no trading market for the Company's Class B Common Stock. (14) Benefit Plans Retirement benefits under the Company's principal pension plan are based on the employee's length of service, average compensation over the five consecutive years which gives the highest average compensation and the average of the Social Security taxable wage base during the 35-year period before a participant reaches Social Security retirement age. Contributions to the plan are based on the projected unit credit actuarial funding method and are limited to the amounts that are currently deductible for income tax purposes. The following tables set forth a reconciliation of the beginning and ending balances of the projected benefit obligation, a reconciliation of beginning and ending balances of the fair value of plan assets and funded status of the two Company-sponsored pension plans: <TABLE> <CAPTION> Fiscal Year ----------------- 2001 2000 -------- ------- In Thousands <S> <C> <C> Projected benefit obligation at beginning of year $ 86,353 $81,121 Service cost..................................... 3,290 3,606 Interest cost.................................... 6,578 6,180 Actuarial (gain) loss............................ 8,894 (1,732) Benefits paid.................................... (2,999) (2,855) Other............................................ 211 33 -------- ------- Projected benefit obligation at end of year...... $102,327 $86,353 -------- ------- Fair value of plan assets at beginning of year... $ 87,723 $88,609 Actual return on plan assets..................... (4,461) (1,100) Employer contributions........................... 309 3,069 Benefits paid.................................... (2,999) (2,855) -------- ------- Fair value of plan assets at end of year......... $ 80,572 $87,723 -------- ------- </TABLE> <TABLE> <CAPTION> Dec. 30, 2001 Dec. 31, 2000 ------------- ------------- In Thousands <S> <C> <C> Funded status of the plans................ $(21,755) $1,370 Unrecognized prior service cost........... 21 (324) Unrecognized net loss..................... 29,116 8,012 -------- ------ Net amount recognized..................... $ 7,382 $9,058 -------- ------ Accrued benefit liability................. $(10,334) Prepaid pension cost...................... $9,058 Accumulated other comprehensive income.... 17,716 -------- ------ Net amount recognized in the balance sheet $ 7,382 $9,058 -------- ------ </TABLE> 44
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements Net periodic pension cost for the Company-sponsored pension plans included the following: <TABLE> <CAPTION> Fiscal Year ------------------------- 2001 2000 1999 ------- ------- ------- In Thousands <S> <C> <C> <C> Service cost...................... $ 3,290 $ 3,606 $ 3,375 Interest cost..................... 6,578 6,180 5,508 Expected return on plan assets.... (7,763) (7,963) (6,659) Amortization of prior service cost (135) (133) (135) Recognized net actuarial loss..... 15 965 ------- ------- ------- Net periodic pension cost......... $ 1,985 $ 1,690 $ 3,054 ======= ======= ======= </TABLE> The weighted average rate assumptions used in determining net periodic pension cost and the projected benefit obligation were: <TABLE> <CAPTION> 2001 2000 ----- ----- <S> <C> <C> Weighted average discount rate used in determining the actuarial present value of the projected benefit obligation....................................................... 7.75% 7.75% Weighted average expected long-term rate of return on plan assets.................... 9.00% 9.00% Weighted average rate of compensation increase....................................... 4.00% 4.00% </TABLE> The Company also participates in various multi-employer pension plans covering certain employees who are part of collective bargaining agreements. Total pension expense for multi-employer plans was $1.2 million, $1.1 million and $1.2 million in 2001, 2000 and 1999, respectively. The Company provides a 401(k) Savings Plan for substantially all of its employees who are not part of collective bargaining agreements. Under provisions of the Savings Plan, an employee is vested with respect to Company contributions upon the completion of two years of service with the Company. The total cost for this benefit in 2001, 2000 and 1999 was $2.8 million, $3.1 million and $3.2 million, respectively. The Company currently provides employee leasing and management services to Piedmont and SAC. Piedmont and SAC employees participate in the Company's employee benefit plans. The Company provides postretirement benefits for substantially all of its employees. The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during employees' periods of active service. The Company does not pre-fund these benefits and has the right to modify or terminate certain of these benefits in the future. The Company amended certain provisions of this postretirement benefit plan in 2001. Under the amended plan, qualifying active employees will be eligible for coverage upon retirement until they become eligible for Medicare (normally age 65), at which time coverage under the plan will cease. 45
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements The following tables set forth a reconciliation of the beginning and ending balances of the benefit obligation, a reconciliation of the beginning and ending balances of fair value of plan assets and funded status of the Company's postretirement plan: <TABLE> <CAPTION> Fiscal Year ---------------- 2001 2000 ------- ------- In Thousands <S> <C> <C> Benefit obligation at beginning of year. $47,960 $36,501 Service cost............................ 331 852 Interest cost........................... 3,253 2,816 Plan participants' contributions........ 675 607 Actuarial loss.......................... 252 10,251 Benefits paid........................... (3,423) (3,067) Change in plan provisions............... (2,988) ------- ------- Benefit obligation at end of year....... $46,060 $47,960 ------- ------- Fair value of plan assets at beginning of year............................... $ -- $ -- Employer contributions.................. 2,748 2,460 Plan participants' contributions........ 675 607 Benefits paid........................... (3,423) (3,067) ------- ------- Fair value of plan assets at end of year $ -- $ -- ------- ------- </TABLE> <TABLE> <CAPTION> Dec. 30, Dec. 31, 2001 2000 -------- -------- In Thousands <S> <C> <C> Funded status of the plan........ $(46,060) $(47,960) Unrecognized net loss............ 20,559 21,414 Unrecognized prior service cost.. (2,962) (271) Contributions between measurement date and fiscal year-end....... 738 864 -------- -------- Accrued liability................ $(27,725) $(25,953) ======== ======== </TABLE> The components of net periodic postretirement benefit cost were as follows: <TABLE> <CAPTION> Fiscal Year ---------------------- 2001 2000 1999 ------ ------ ------ In Thousands <S> <C> <C> <C> Service cost.................................... $ 331 $ 852 $ 954 Interest cost................................... 3,253 2,816 2,608 Amortization of unrecognized transitional assets (25) (25) (25) Recognized net actuarial loss................... 1,106 493 745 Amortization of prior service cost.............. (271) ------ ------ ------ Net periodic postretirement benefit cost........ $4,394 $4,136 $4,282 ====== ====== ====== </TABLE> The weighted average discount rate used to estimate the postretirement benefit obligation was 7.75% as of December 30, 2001 and December 31, 2000, respectively. The weighted average health care cost trend used in measuring the postretirement benefit expense was 12% in 2001 graded down 1% per year to an ultimate rate of 5%. A 1% increase or decrease in this annual cost trend 46
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements would have impacted the postretirement benefit obligation and net periodic postretirement benefit cost as follows: <TABLE> <CAPTION> In Thousands Impact on 1% Increase 1% Decrease --------- ----------- ----------- <S> <C> <C> Postretirement benefit obligation at December 30, 2001 $9,719 $(8,104) Net periodic postretirement benefit cost in 2001...... 790 (658) </TABLE> (15) Related Party Transactions The Company's business consists primarily of the production, marketing and distribution of soft drink products of The Coca-Cola Company, which is the sole owner of the secret formulas under which the primary components (either concentrates or syrups) of its soft drink products are manufactured. Accordingly, the Company purchases a substantial majority of its requirements of concentrates and syrups from The Coca-Cola Company in the ordinary course of its business. The Company paid The Coca-Cola Company approximately $241 million, $237 million and $258 million in 2001, 2000 and 1999, respectively, for sweetener, syrup, concentrate and other miscellaneous purchases. The Company engages in a variety of marketing programs, local media advertising and similar arrangements to promote the sale of products of The Coca-Cola Company in bottling territories operated by the Company. Direct marketing funding and other support provided to the Company by The Coca-Cola Company was approximately $52 million, $52 million and $70 million in 2001, 2000 and 1999, respectively. The Company paid approximately $27 million, $26 million and $29 million in 2001, 2000 and 1999, respectively, for local media and marketing program expense pursuant to cooperative advertising and cooperative marketing arrangements with The Coca-Cola Company. The Company has a production arrangement with Coca-Cola Enterprises Inc. ("CCE") to buy and sell finished products at cost. Sales to CCE under this agreement were $21.0 million, $20.0 million and $21.0 million in 2001, 2000 and 1999, respectively. Purchases from CCE under this arrangement were $21.0 million, $15.0 million and $15.3 million in 2001, 2000 and 1999, respectively. The Coca-Cola Company has significant equity interests in the Company and CCE. As of December 30, 2001, CCE had a 7.95% equity interest in the Company's total outstanding Common Stock and Class B Common Stock. The Company entered into an agreement for consulting services with J. Frank Harrison, Jr. beginning in 1997. Payments in 2001, 2000 and 1999 related to the consulting services agreement totaled $200,000 each year. On July 2, 1993, the Company and The Coca-Cola Company formed Piedmont. Prior to January 2, 2002, the Company and The Coca-Cola Company, through their respective subsidiaries, each beneficially owned a 50% interest in Piedmont. On January 2, 2002, the Company purchased an additional 4.651% interest in Piedmont from The Coca-Cola Company, increasing the Company's ownership in Piedmont to 54.651%. The Company provides a portion of the soft drink products for Piedmont at cost and receives a fee for managing the operations of Piedmont pursuant to a management agreement. The Company sold product at cost to Piedmont during 2001, 2000 and 1999 totaling $53.0 million, $53.5 million and $56.4 million, respectively. The Company received $17.8 million, $13.6 million and $14.2 million for management services pursuant to its management agreement with Piedmont for 2001, 2000 and 1999, respectively. The Company also subleases various fleet and vending equipment to Piedmont at cost. These sublease rentals amounted to $11.2 million, $11.0 million and $10.0 million in 2001, 2000 and 1999, respectively. In addition, Piedmont subleases various fleet and vending equipment to the Company at cost. These sublease rentals amounted to $.2 million, each year for all periods presented. 47
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements On November 30, 1992, the Company and the previous owner of the Company's Snyder Production Center in Charlotte, North Carolina, who was unaffiliated with the Company, agreed to the early termination of the Company's lease. Harrison Limited Partnership One ("HLP") purchased the property contemporaneously with the termination of the lease, and the Company leased its Snyder Production Center from HLP pursuant to a ten-year lease that was to expire on November 30, 2002. HLP's sole general partner is a corporation of which J. Frank Harrison, Jr. is the sole shareholder. HLP's sole limited partner is a trust of which J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, and Reid M. Henson, Director of the Company, are co-trustees. On August 9, 2000, a Special Committee of the Board of Directors approved the sale by the Company of property and improvements adjacent to the Snyder Production Center to HLP and a new lease of both the conveyed property and the Snyder Production Center from HLP, which expires on December 31, 2010. The sale closed on December 15, 2000 at a price of $10.5 million. The annual base rent the Company is obligated to pay for its lease of this property is subject to adjustment for an inflation factor and for increases or decreases in interest rates, using LIBOR as the measurement device. Rent expense for these properties totaled $3.3 million, $2.9 million and $2.6 million in 2001, 2000 and 1999, respectively. In May 2000, the Company entered into a five-year consulting agreement with Reid M. Henson. Mr. Henson served as a Vice Chairman of the Board of Directors from 1983 to May 2000. Payments in 2001 and 2000 related to the consulting agreement totaled $350,000 and $204,000, respectively. On June 1, 1993, the Company entered into a lease agreement with Beacon Investment Corporation related to the Company's headquarters office building. Beacon Investment Corporation's sole shareholder is J. Frank Harrison, III. On January 5, 1999, the Company entered into a new ten-year lease agreement with Beacon Investment Corporation which includes the Company's headquarters office building and an adjacent office facility. The annual base rent the Company is obligated to pay under this lease is subject to adjustment for increases in the Consumer Price Index and for increases or decreases in interest rates using the Adjusted Eurodollar Rate as the measurement device. Rent expense under this lease totaled $3.3 million, $3.6 million and $3.1 million in 2001, 2000 and 1999, respectively. The Company is a shareholder in two cooperatives from which it purchases substantially all its requirements for plastic bottles. Net purchases from these entities were approximately $50 million, $49 million and $45 million in 2001, 2000 and 1999, respectively. In connection with its participation in one of these cooperatives, the Company has guaranteed a portion of the cooperative's debt. Such guarantee amounted to $20.4 million as of December 30, 2001. The Company is a member of SAC, a manufacturing cooperative. SAC sells finished products to the Company and Piedmont at cost. Purchases from SAC by the Company and Piedmont for finished products were $110 million, $110 million and $109 million in 2001, 2000 and 1999, respectively. The Company also manages the operations of SAC pursuant to a management agreement. Management fees from SAC were $1.2 million, $1.0 million and $1.3 million in 2001, 2000 and 1999, respectively. Also, the Company has guaranteed a portion of debt for SAC. Such guarantee was $16.8 million as of December 30, 2001. The Company purchases certain computerized data management products and services related to inventory control and marketing program support from Data Ventures LLC ("Data Ventures"), a Delaware limited liability company in which the Company holds a 31.25% equity interest. J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, holds a 32.5% equity interest in Data Ventures. On September 30, 1997, Data Ventures obtained a $1.9 million unsecured line of credit from the Company. In December 1999, this line of credit was increased to $3.0 million. In July 2001, this line of credit was increased to $4.5 million. Data Ventures was indebted to the Company for $3.9 million and $2.8 million as of December 30, 48
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements 2001 and December 31, 2000, respectively. The Company recorded a loan loss provision of $1.6 million, $.2 million and $.6 million in 2001, 2000 and 1999, respectively, related to its outstanding loan to Data Ventures. The Company purchased products and services from Data Ventures for $435,000, $414,000 and $154,000 in 2001, 2000 and 1999, respectively. (16) Restructuring In November 1999, the Company announced a plan to restructure its operations by consolidating sales divisions and reducing its workforce. Approximately 300 positions were eliminated as a result of the restructuring. The Company recorded a pre-tax restructuring charge of $2.2 million in the fourth quarter of 1999, which was funded by cash flow from operations. The restructuring has been completed and substantially all amounts have been paid. (17) Earnings Per Share The following table sets forth the computation of basic net income per share and diluted net income per share: <TABLE> <CAPTION> Fiscal Year -------------------- 2001 2000 1999 ------ ------ ------ In Thousands (Except Per Share Data) <S> <C> <C> <C> Numerator: Numerator for basic net income and diluted net income...... $9,470 $6,294 $3,241 Denominator: Denominator for basic net income per share--weighted average common shares.................... 8,753 8,733 8,588 Effect of dilutive securities--Stock options............... 68 89 120 ------ ------ ------ Denominator for diluted net income per share--adjusted weighted average common shares........... 8,821 8,822 8,708 ------ ------ ------ Basic net income per share................................. $ 1.08 $ .72 $ .38 ====== ====== ====== Diluted net income per share............................... $ 1.07 $ .71 $ .37 ====== ====== ====== </TABLE> (18) Risks And Uncertainties Approximately 90% of the Company's sales are products of The Coca-Cola Company, which is the sole supplier of the concentrate required to manufacture these products. The remaining 10% of the Company's sales are products of various other beverage companies. The Company has bottling contracts under which it has various requirements to meet. Failure to meet the requirements of these bottling contracts could result in the loss of distribution rights for the respective product. The Company currently obtains all of its aluminum cans from one domestic supplier. The Company currently obtains all of its PET bottles from two domestic cooperatives. The inability of either of these aluminum can or PET bottle suppliers to meet the Company's requirement for containers could result in short-term shortages until alternative sources of supply could be located. The Company attempts to mitigate these risks by working closely with key suppliers and by purchasing business interruption insurance where appropriate. 49
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements The Company's products are sold and distributed directly by its employees to retail stores and other outlets. During 2001, approximately 78% of the Company's physical case volume was sold in the take-home channel through supermarkets, convenience stores, drug stores and mass merchandisers. However, no individual customer accounted for as much as 10% of the Company's total sales volume. The Company makes significant expenditures each year on fuel for product delivery. Material increases in the cost of fuel may result in a reduction in earnings to the extent the Company is not able to increase its selling prices to offset the increase in fuel costs. Certain liabilities of the Company are subject to risk of changes in both long-term and short-term interest rates. These liabilities include floating rate debt, leases with payments determined on floating interest rates, postretirement benefit obligations and the Company's nonunion pension liability. Less than 10% of the Company's labor force is currently covered by collective bargaining agreements. Two collective bargaining contracts covering approximately 6% of the Company's employees expire during 2002. In March 2000, at the end of a collective bargaining agreement in Huntington, West Virginia, the Company and Teamsters Local Union 505 were unable to reach agreement on wages and benefits. The union elected to strike and other Teamster-represented sales centers in West Virginia joined in a sympathy strike. In August 2000, the Company and the respective local unions settled all outstanding issues. Material changes in the performance requirements or decreases in levels of marketing funding historically provided under marketing programs with The Coca-Cola Company and other franchisers, or the Company's inability to meet the performance requirements for the anticipated levels of such marketing funding support payments, would adversely affect future earnings. The Coca-Cola Company is under no obligation to continue marketing funding at past levels. Changes in the market value of assets in the Company's pension plan as well as material changes in interest rates, may result in significant changes in net periodic pension cost and Company contributions to the plan. Changes in the insurance markets may significantly impact insurance premiums, or in certain situations, may impact the Company's ability to secure insurance coverages. 50
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements (19) Supplemental Disclosures of Cash Flow Information Changes in current assets and current liabilities affecting cash, net of effects of acquisitions and divestitures, were as follows: <TABLE> <CAPTION> Fiscal Year -------------------------- 2001 2000 1999 ------- -------- ------- In Thousands <S> <C> <C> <C> Accounts receivable, trade, net............................... $(1,313) $ (2,294) $(1,017) Accounts receivable from The Coca-Cola Company................ 1,445 638 4,073 Accounts receivable, other.................................... 2,994 5,691 (5,419) Inventories................................................... 586 712 (2,487) Prepaid expenses and other assets............................. 647 (757) 2,542 Accounts payable, trade....................................... 6,893 (249) 22 Accounts payable to The Coca-Cola Company..................... 4,123 1,456 (2,848) Other accrued liabilities..................................... 3,848 (22,145) 14,046 Accrued compensation.......................................... 3,906 7,041 (3,079) Accrued interest payable...................................... 1,395 (6,347) 1,505 Due to Piedmont............................................... 8,246 13,700 2,301 ------- -------- ------- (Increase) decrease in current assets less current liabilities $32,770 $ (2,554) $ 9,639 ======= ======== ======= </TABLE> Cash payments for interest and income taxes were as follows: <TABLE> <CAPTION> Fiscal Year ----------------------- 2001 2000 1999 ------- ------- ------- In Thousands <S> <C> <C> <C> Interest.............................................. $42,084 $58,736 $48,221 Income taxes (net of refunds)......................... 2,673 2,830 1,939 </TABLE> (20) New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations," ("SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," ("SFAS No. 142"). These standards require that all business combinations be accounted for using the purchase method and that goodwill and intangible assets with indefinite useful lives not be amortized but instead be tested for impairment at least annually. These standards provide guidelines for new disclosure requirements and outline the criteria for initial recognition and measurement of intangibles, assignment of assets and liabilities including goodwill to reporting units and goodwill impairment testing. The provisions of SFAS Nos. 141 and 142 apply to all business combinations consummated after June 30, 2001. The provisions of SFAS No. 142 for existing goodwill and other intangible assets are required to be implemented effective the first day of fiscal year 2002. The Company anticipates the adoption of SFAS No. 142 will reduce amortization expense in 2002 by approximately $12.6 million for the Company and by approximately $8.4 million for Piedmont. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," but it retains many of the fundamental provisions of that Statement. SFAS No. 144 also extends the reporting requirements to report separately as discontinued operations, components of an 51
COCA-COLA BOTTLING CO. CONSOLIDATED Notes to Consolidated Financial Statements entity that have either been disposed of or classified as held for sale. The provisions of SFAS No. 144 are required to be adopted at the beginning of fiscal year 2002. The Company believes that such adoption will not have a material effect on its financial statements. EITF No. 01-09 "Accounting for Consideration Given by a Vendor to a Customer or Reseller of Vendor's Products" is effective for the Company at the beginning of fiscal year 2002 and will require certain expenses currently classified as selling, general and administrative expenses to be reclassified as deductions from net sales. This change will occur beginning in the first quarter of 2002 and all comparable periods will be reclassified. The Company estimates that approximately $28.6 million of net expense associated with payments to customers in 2001 which were previously classified as selling, general and administrative expenses will be reclassified as a reduction in net sales in accordance with the EITF consensus. (21) Quarterly Financial Data (Unaudited) Set forth below are unaudited quarterly financial data for the fiscal years ended December 30, 2001 and December 31, 2000. <TABLE> <CAPTION> Quarter ------------------------------------ 1 2 3 4 -------- -------- -------- -------- In Thousands (Except Per Share Data) <S> <C> <C> <C> <C> Year Ended December 30, 2001 Net sales........................... $230,057 $271,678 $266,604 $254,347 Gross margin........................ 106,467 124,708 121,108 114,833 Net income (loss)................... (1,782) 5,009 7,915 (1,672) Basic net income (loss) per share... (.20) .57 .90 (.19) Diluted net income (loss) per share. (.20) .57 .90 (.19) </TABLE> <TABLE> <CAPTION> Quarter ------------------------------------ 1 2 3 4 -------- -------- -------- -------- In Thousands (Except Per Share Data) <S> <C> <C> <C> <C> Year Ended December 31, 2000 Net sales........................... $228,184 $270,933 $258,565 $237,452 Gross margin........................ 105,941 127,931 121,006 110,015 Net income (loss)................... (1,957) 6,317 6,398 (4,464) Basic net income (loss) per share... (.22) .72 .73 (.51) Diluted net income (loss) per share. (.22) .71 .73 (.51) </TABLE> 52
Report of Independent Accountants To the Board of Directors and Stockholders of Coca-Cola Bottling Co. Consolidated: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Coca-Cola Bottling Co. Consolidated and its subsidiaries at December 30, 2001 and December 31, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Charlotte, North Carolina February 15, 2002 53
The financial statement schedule required by Regulation S-X is set forth in response to Item 14 below. The supplementary data required by Item 302 of Regulation S-K is set forth in Note 21 to the financial statements. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 54
Part III Item 10. Directors and Executive Officers of the Company For information with respect to the executive officers of the Company, see "Executive Officers of the Registrant" included as a separate item at the end of Part I of this Report. For information with respect to the directors of the Company, see the "Election of Directors" section of the Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission before April 29, 2002, which is incorporated herein by reference. For information with respect to Section 16 reports, see the "Election of Directors--Section 16(a) Beneficial Ownership Reporting Compliance" section of the Proxy Statement for the 2002 Annual Meeting of Stockholders, which is incorporated herein by reference. Item 11. Executive Compensation For information with respect to executive and director compensation, see the "Executive Compensation," "Compensation Committee Interlocks and Insider Participation," and "Election of Directors--The Board of Directors and its Committees" sections of the Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission, which are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters For information with respect to security ownership of certain beneficial owners and management, see the "Principal Stockholders" and "Election of Directors--Beneficial Ownership of Management" sections of the Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission, which are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions For information with respect to certain relationships and related transactions, see the "Certain Transactions" section of the Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission, which is incorporated herein by reference. 55
Part IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K A. List of Documents filed as part of this report. 1. Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Cash Flows Consolidated Statements of Changes in Stockholders' Equity Notes to Consolidated Financial Statements Report of Independent Accountants 2. Financial Statement Schedule Schedule II--Valuation and Qualifying Accounts and Reserves All other financial statements and schedules not listed have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required. 3. Listing of Exhibits: Exhibit Index <TABLE> <CAPTION> Incorporated by Reference or Number Description Filed Herewith - ------ ----------- -------------------------------- <C> <S> <C> (3.1) Bylaws of the Company, as amended. Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (3.2) Restated Certificate of Incorporation of the Company. Exhibit 3.1 to the Company's Registration Statement (No. 33- 54657) on Form S-3 as filed on July 20, 1994. (4.1) Specimen of Common Stock Certificate. Exhibit 4.1 to the Company's Registration Statement (No. 2- 97822) on Form S-1 as filed on May 31, 1985. (4.2) Supplemental Indenture, dated as of March 3, 1995, Exhibit 4.15 to the Company's between the Company and Citibank, N.A., as Successor, Annual Report, as amended, on as Trustee. Form 10-K/A-2 for the fiscal year ended January 1, 1995. (4.3) Form of the Company's 6.85% Debentures due 2007. Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 1995. </TABLE> 56
<TABLE> <CAPTION> Incorporated by Reference or Number Description Filed Herewith - ------ ----------- -------------------------------- <C> <S> <C> (4.4) Loan Agreement dated as of November 20, 1995 between the Exhibit 4.13 to the Company's Company and LTCB Trust Company, as Agent, and other banks Annual Report on Form 10-K for named therein. the fiscal year ended December 31, 1995. (4.5) Amended and Restated Credit Agreement dated as of December Exhibit 4.14 to the Company's 21, 1995 between the Company and NationsBank, N.A., Bank of Annual Report on Form 10-K for America National Trust and Savings Association and other banks the fiscal year ended December named therein. 31, 1995. (4.6) Waiver dated as of December 31, 2001, to the Amended and Filed herewith. Restated Credit Agreement, designated as Exhibit 4.5. (4.7) Amendment, dated as of July 22, 1997, to Loan Agreement Exhibit 4.1 to the Company's (designated as Exhibit 4.4), between the Company and LTCB Quarterly Report on Form 10-Q Trust Company, as Agent, and other banks named therein. for the quarter ended June 29, 1997. (4.8) Form of the Company's 7.20% Debentures due 2009. Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 1997. (4.9) Form of the Company's 6.375% Debentures due 2009. Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 4, 1999. (4.10) Assignment and Release Agreement, dated as of October 6, 1999 Exhibit 4.11 to the Company's (relating to the Loan Agreement designated as Exhibit 4.4), by Annual Report on Form 10-K for and between The Long-Term Credit Bank of Japan, Limited and the fiscal year ended January 2, General Electric Capital Corporation. 2000. (4.11) Second Amendment dated as of February 24, 2000 (to Loan Exhibit 4.12 to the Company's Agreement designated as Exhibit 4.4) by and among the Annual Report on Form 10-K for Company and General Electric Capital Corporation, as agent. the fiscal year ended January 2, 2000. (4.12) The Registrant, by signing this report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries which authorizes a total amount of securities not in excess of 10 percent of total assets of the Registrant and its subsidiaries on a consolidated basis. (10.1) Stock Rights and Restrictions Agreement by and between Exhibit 28.01 to the Company's Coca-Cola Bottling Co. Consolidated and The Coca-Cola Current Report on Form 8-K Company dated January 27, 1989. dated January 27, 1989. (10.2) Description and examples of bottling franchise agreements Exhibit 10.20 to the Company's between the Company and The Coca-Cola Company. Annual Report on Form 10-K for the fiscal year ended December 31, 1988. </TABLE> 57
<TABLE> <CAPTION> Incorporated by Reference or Number Description Filed Herewith - ------ ----------- ----------------------------------- <C> <S> <C> (10.3) Lease, dated as of January 1, 1999, by and between the Company Exhibit 10.5 to the Company's and the Ragland Corporation, related to the production/ Annual Report on Form 10-K for distribution facility in Nashville, Tennessee. the fiscal year ended December 31, 2000. (10.4) Description and example of Deferred Compensation Agreement, Exhibit 19.1 to the Company's dated as of October 1, 1987, between Eligible Employees of the Annual Report on Form 10-K for Company and the Company under the Officer's Split-Dollar Life the fiscal year ended December Insurance Plan. ** 30, 1990. (10.5) Purchase and Sale Agreement, dated as of December 15, 2000, Exhibit 10.9 to the Company's between the Company and Harrison Limited Partnership One, Annual Report on Form 10-K for related to land adjacent to the Snyder Production Center in the fiscal year ended December Charlotte, North Carolina. 31, 2000. (10.6) Lease Agreement, dated as of December 15, 2000, between the Exhibit 10.10 to the Company's Company and Harrison Limited Partnership One, related to the Annual Report on Form 10-K for Snyder Production Center in Charlotte, North Carolina and a the fiscal year ended December distribution center adjacent thereto. 31, 2000. (10.7) Partnership Agreement of Carolina Coca-Cola Bottling Exhibit 2.01 to the Company's Partnership,* dated as of July 2, 1993, by and among Carolina Current Report on Form 8-K Coca-Cola Bottling Investments, Inc., Coca-Cola Ventures, Inc., dated July 2, 1993. Coca-Cola Bottling Co. Affiliated, Inc., Fayetteville Coca-Cola Bottling Company and Palmetto Bottling Company. (10.8) Definition and Adjustment Agreement, dated July 2, 1993, by Exhibit 2.05 to the Company's and among Carolina Coca-Cola Bottling Partnership,* Coca-Cola Current Report on Form 8-K Ventures, Inc., Coca-Cola Bottling Co. Consolidated, CCBC of dated July 2, 1993. Wilmington, Inc., Carolina Coca-Cola Bottling Investments, Inc., The Coca-Cola Company, Carolina Coca-Cola Holding Company, The Coastal Coca-Cola Bottling Company, Eastern Carolina Coca-Cola Bottling Company, Inc., Coca-Cola Bottling Co. Affiliated, Inc., Fayetteville Coca-Cola Bottling Company and Palmetto Bottling Company. (10.9) Management Agreement, dated as of July 2, 1993, by and among Exhibit 10.01 to the Company's Coca-Cola Bottling Co. Consolidated, Carolina Coca-Cola Current Report on Form 8-K Bottling Partnership,* CCBC of Wilmington, Inc., Carolina dated July 2, 1993. Coca-Cola Bottling Investments, Inc., Coca-Cola Ventures, Inc. and Palmetto Bottling Company. (10.10) First Amendment to Management Agreement designated As Exhibit 10.14 to the Company's Exhibit 10.13, dated as of January 1, 2001. Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (10.11) Post-Retirement Medical and Life Insurance Benefit Exhibit 10.02 to the Company's Reimbursement Agreement, dated July 2, 1993, by and between Current Report on Form 8-K Carolina Coca-Cola Bottling Partnership* and Coca-Cola dated July 2, 1993. Bottling Co. Consolidated. (10.12) Amended and Restated Guaranty Agreement, dated as of July 15, Exhibit 10.06 to the Company's 1993 re: Southeastern Container, Inc. Quarterly Report on Form 10-Q for the quarter ended July 4, 1993. </TABLE> 58
<TABLE> <CAPTION> Incorporated by Reference or Number Description Filed Herewith - ------ ----------- -------------------------------- <C> <S> <C> (10.13) Management Agreement, dated as of June 1, 1994, by and among Exhibit 10.6 to the Company's Coca-Cola Bottling Co. Consolidated and South Atlantic Quarterly Report on Form 10-Q Canners, Inc. for the quarter ended July 3, 1994. (10.14) Agreement, dated as of March 1, 1994, between the Company Exhibit 10.85 to the Company's and South Atlantic Canners, Inc. Annual Report on Form 10-K for the fiscal year ended January 1, 1995. (10.15) Stock Option Agreement, dated as of March 8, 1989, of Exhibit 10.86 to the Company's J. Frank Harrison, Jr. ** Annual Report on Form 10-K for the fiscal year ended January 1, 1995 (10.16) Stock Option Agreement, dated as of August 9, 1989, of Exhibit 10.87 to the Company's J. Frank Harrison, III. ** Annual Report on Form 10-K for the fiscal year ended January 1, 1995. (10.17) Guaranty Agreement, dated as of May 18, 2000, between the Filed herewith. Company and Wachovia Bank of North Carolina, N.A. (10.18) Guaranty Agreement, dated as of December 1, 2001, between Filed herewith. the Company and Wachovia, N.A. (10.19) Description of the Company's 2002 Bonus Plan for officers. ** Filed herewith. (10.20) Agreement for Consultation and Services between the Company Exhibit 10.54 to the Company's and J. Frank Harrison, Jr. ** Annual Report on Form 10-K for the fiscal year ended December 29, 1996. (10.21) Retirement and Consulting Agreement, effective as of May 31, Exhibit 10.25 to the Company's 2000, between the Company and Reid M. Henson. ** Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (10.22) Agreement to assume liability for postretirement benefits Exhibit 10.55 to the Company's between the Company and Piedmont Coca-Cola Bottling Annual Report on Form 10-K for Partnership. the fiscal year ended December 29, 1996. (10.23) Franchise Asset Purchase Agreement, dated as of January 21, Exhibit 10.58 to the Company's 1998, by and among Coca-Cola Bottling Company Southeast, Annual Report on Form 10-K for Incorporated, as Seller, NABC, Inc., an indirect wholly-owned the fiscal year ended December subsidiary of Guarantor, as Buyer, and Coca-Cola Bottling Co. 28, 1997. Consolidated, as Guarantor. (10.24) Operating Asset Purchase Agreement, dated as of January 21, Exhibit 10.59 to the Company's 1998, by and among Coca-Cola Bottling Company Southeast, Annual Report on Form 10-K for Incorporated, as Seller, CCBC of Nashville, L.P., an indirect the fiscal year ended December wholly-owned subsidiary of Guarantor, as Buyer, and Coca-Cola 28, 1997. Bottling Co. Consolidated, as Guarantor. </TABLE> 59
<TABLE> <CAPTION> Incorporated by Reference or Number Description Filed Herewith - ------ ----------- -------------------------------- <C> <S> <C> (10.25) Lease Agreement, dated as of January 5, 1999, between the Exhibit 10.61 to the Company's Company and Beacon Investment Corporation, related to the Annual Report on Form 10-K for Company's corporate headquarters and an adjacent office the fiscal year ended January 3, building in Charlotte, North Carolina. 1999. (10.26) Coca-Cola Bottling Co. Consolidated Director Deferral Plan, Exhibit 10.1 to the Company's dated as of January 1, 1998. ** Quarterly Report on Form 10-Q for the quarter ended March 29, 1998. (10.27) Agreement and Plan of Merger dated as of September 29, 1999, Exhibit 10.1 to the Company's by and among Lynchburg Coca-Cola Bottling Co., Inc., Quarterly Report on Form 10-Q Coca-Cola Bottling Co. Consolidated, LCCB Merger Co., for the quarter ended October 3, Certain Shareholders of Lynchburg Coca-Cola Bottling Co., Inc. 1999. and George M. Lupton, Jr. as the shareholders' representative. (10.28) Agreement and Plan of Merger, dated as of March 26, 1999, by Annex A to the Company's and among the Company and Carolina Coca-Cola Bottling Registration Statement Company, Inc. (No. 333-75751) on Form S-4. (10.29) Restricted Stock Award to J. Frank Harrison, III (effective Annex A to the Company's January 4, 1999). ** Proxy Statement for the 1999 Annual Meeting. (10.30) Can Supply Agreement, dated as of February 22, 2000, between Exhibit 10.1 to the Company's American National Can Company and the Company. Quarterly Report on Form 10-Q for the quarter ended April 2, 2000. (10.31) Asset Acquisition Agreement, dated as of September 29, 2000, Exhibit 10.1 to the Company's by and among The Coca-Cola Bottling Company of West Quarterly Report on Form 10-Q Virginia, Inc. Coca-Cola Bottling Company of Roanoke, Inc. for the quarter ended October 1, and Coca-Cola Enterprises Inc. 2000. (10.32) Franchise Acquisition Agreement, dated as of September 29, Exhibit 10.2 to the Company's 2000, by and among WVBC, Inc., ROBC, Inc. and Coca-Cola Quarterly Report on Form 10-Q Enterprises Inc. for the quarter ended October 1, 2000. (10.33) Guaranty Agreement, dated as of September 29, 2000, between Exhibit 10.3 to the Company's the Company and Coca-Cola Enterprises Inc. Quarterly Report on Form 10-Q for the quarter ended October 1, 2000. (10.34) Supplemental Savings Incentive Plan, as amended and restated Exhibit 10.1 to the Company's as of January 1, 2001, between Eligible Employees of the Quarterly Report on Form 10-Q Company and the Company. ** for the quarter ended April 1, 2001. (10.35) Employment Agreement Termination dated as of April 27, 2001, Exhibit 10.1 to the Company's between the Company and James L. Moore, Jr. ** Quarterly Report on Form 10-Q for the quarter ended July 1, 2001. </TABLE> 60
<TABLE> <CAPTION> Incorporated by Reference or Number Description Filed Herewith - ------ ----------- ----------------------------- <C> <S> <C> (10.36) Officer Retention Plan (ORP), as amended and restated as of Exhibit 10.2 to the Company's January 1, 2001, between Eligible Employees of the Company Quarterly Report on Form 10-Q and the Company. ** for the quarter ended July 1, 2001. (10.37) Master Amendment to Partnership Agreement, Management Exhibit 10.1 to the Company's Agreement and Definition and Adjustment Agreement dated as Current Report on Form 8-K of January 2, 2002 by and among Piedmont Coca-Cola Bottling dated January 2, 2002. Partnership, The Coca-Cola Company and the Company. (10.38) Securities Purchase Agreement, dated as of January 2, 2002, Filed herewith. by and between Piedmont Partnership Holding Company, a Delaware corporation (KO Subsidiary), and, Coca-Cola Ventures, Inc., a Delaware corporation (Consolidated Subsidiary). (10.39) Assignment, dated as of January 2, 2002, by and between Filed herewith. Piedmont Partnership Holding Company, a Delaware corporation (KO Subsidiary), and Coca-Cola Ventures, Inc. a Delaware corporation (Consolidated Subsidiary). (10.40) Loan Agreement, dated as of May 28, 1996, between Piedmont Filed herewith. Coca-Cola Bottling Partnership and LTCB Trust Company, as Agent, and other banks named therein. (10.41) First Amendment, dated February 24, 2000, to Loan Agreement Filed herewith. designated as Exhibit 10.40. (10.42) Assignment and release agreement, dated as of October 6, Filed herewith. 1999, by and between LTCB Trust Company, as Agent, and General Electric Capital Corporation to loan agreement designated as Exhibit 10.40. (21.1) List of subsidiaries. Filed herewith. (23.1) Consent of Independent Accountants to Incorporation by Filed herewith. Reference into Form S-3 (Registration No. 33-4325), Form S-3 (Registration No. 33-54657) and Form S-3 (Registration No. 333-71003). </TABLE> - -------- * Carolina Coca-Cola Bottling Partnership's name was changed to Piedmont Coca-Cola Bottling Partnership. ** Management contracts and compensatory plans and arrangements required to be filed as exhibits to this form pursuant to Item 14(c) of this report. B. Reports on Form 8-K The Company filed a Current Report on Form 8-K on January 14, 2002 reporting pursuant to Item 5 thereof that it had purchased an additional 4.651% ownership interest in Piedmont Coca-Cola Bottling Partnership from The Coca-Cola Company. No financial statements were required to be filed as part of such Form 8-K. C. Exhibits See Item 14.A.3 61
D. Financial Statement Schedules See Item 14.A.2 62
Schedule II COCA-COLA BOTTLING CO. CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In Thousands) <TABLE> <CAPTION> Additions Charged Balance at to Costs Balance Beginning and at End Description of Year Expenses Deductions of Year - ----------- ---------- --------- ---------- ------- <S> <C> <C> <C> <C> Allowance for doubtful accounts: Fiscal year ended December 30, 2001.... $918 $1,463 $518 $1,863 ==== ====== ==== ====== Fiscal year ended December 31, 2000.... $850 $ 580 $512 $ 918 ==== ====== ==== ====== Fiscal year ended January 2, 2000...... $600 $ 824 $574 $ 850 ==== ====== ==== ====== </TABLE> 63
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Coca-Cola Bottling Co. Consolidated (Registrant) By: /s/ J. Frank Harrison, III ----------------------------- J. Frank Harrison, III Chairman of the Board of Directors and Chief Executive Officer Date: March 26, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. <TABLE> <CAPTION> Signature Title Date - --------- ----- ---- <C> <S> <C> <C> By: /s/ J. Frank Harrison, III Chairman of the Board of March 26, 2002 ----------------------------- Directors, Chief Executive J. Frank Harrison, III Officer and Director By: /s/ J. Frank Harrison, Jr. Chairman Emeritus of the March 26, 2002 ----------------------------- Board of Directors and J. Frank Harrison, Jr. Director By: /s/ H.W. McKay Belk Director March 26, 2002 ----------------------------- H. W. McKay Belk By: /s/ John M. Belk Director March 26, 2002 ----------------------------- John M. Belk By: /s/ Sharon A. Decker Director March 26, 2002 ----------------------------- Sharon A. Decker By: /s/ William B. Elmore President, Chief Operating March 26, 2002 ----------------------------- Officer and Director William B. Elmore </TABLE> 64
By: /s/ Reid M. Henson Director March 26, 2002 ----------------------------- Reid M. Henson By: /s/ Ned R. McWherter Director March 26, 2002 ----------------------------- Ned R. McWherter By: /s/ James L. Moore, Jr. Vice Chairman of the Board of March 26, 2002 ----------------------------- Directors and Director James L. Moore, Jr. By: /s/ John W. Murrey, III Director March 26, 2002 ----------------------------- John W. Murrey, III By: /s/ Carl Ware Director March 26, 2002 ----------------------------- Carl Ware By: /s/ Dennis A. Wicker Director March 26, 2002 ----------------------------- Dennis A. Wicker By: /s/ David V. Singer Executive Vice President and March 26, 2002 ----------------------------- Chief Financial Officer David V. Singer By: /s/ Steven D. Westphal Vice President, Controller March 26, 2002 ----------------------------- and Chief Accounting Officer Steven D. Westphal 65